ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, March 4, 1996 TAG: 9603060002
SECTION: MONEY PAGE PAGE: 6 EDITION: METRO
DATELINE: WASHINGTON
SERIES: Changes in the Tax Law
SOURCE: DAVE SKIDMORE ASSOCIATED PRESS
REPUBLICANS IN CONGRESS spent a lot of time last year considering new tax deductions, but only one proposal survived their budget stalemate with President Clinton.
That was an increase in the deduction for health insurance for self-employed taxpayers. On 1995 returns, the self-employed can deduct 30 percent of the cost of their health insurance, up from 25 percent on 1994 returns.
They take the deduction, up to an amount equal to their net profits and other earned income, on line 26 of Form 1040.
The deduction had lapsed during 1994 but was restored retroactively. If you didn't claim it and were eligible, file an amended return using Form 1040X.
THE RULES FOR OTHER DEDUCTIONS are generally the same as the previous year. Before itemizing them on Schedule A, figure out whether it's better for you to take the standard deduction.
You probably should itemize if your itemized deductions total more than your standard deduction. But if itemized deductions are only slightly higher, you may want to stick with the standard deduction because in an audit the Internal Revenue Service could question each of your itemized deductions.
For married couples filing a joint return and qualifying widows and widowers, the standard deduction is $6,550 this year. For single people, it's $3,900; heads of household, $5,750, and married people filing separate returns, $3,275.
If either you or your spouse were age 65 or older on Jan. 1 or were blind at the end of 1995, check your instruction booklet, or see Publication 501. You're eligible for a bigger standard deduction.
Some deductions may be limited if your income was more than $114,700, or $57,350 married filing separately.
A few deductions, such as health insurance for the self-employed, moving expenses, Individual Retirement Account contributions and alimony paid, are taken on the front of Form 1040. You get them whether or not you itemize. Most of the rest you list on Schedule A. Here's an overview:
MEDICAL AND DENTAL EXPENSES: You can deduct out-of-pocket medical and dental expenses and health insurance premiums for yourself, your spouse and your dependents. But you can deduct only the amount that exceeds 7.5 percent of your adjusted gross income (line 32 of Form 1040). The threshold is high enough, generally, to exclude all except severely ill taxpayers.
You can't deduct health insurance premiums if they've already been shielded from tax through an employer-sponsored cafeteria plan. Premium payments listed in box 1 of your Form W-2 weren't shielded and can be deducted.
Deductible expenses include hospital, doctor and dental fees; prescription drugs including insulin and birth control pills, and certain renovations to your home, such as the addition of a wheelchair ramp or removal of lead-based paint. If you're self-employed, you can count the 70 percent of health insurance premiums that you weren't able to deduct on line 26 of Form 1040.
Expenses that are not deductible include the cost of health club memberships, smoking cessation and weight-loss programs, non-prescription medicine and surgery for purely cosmetic purposes.
Publication 502 has the details.
TAXES: State income taxes and local real estate taxes are deductible. Annual personal property taxes, such as those charged on cars and boats, also are deductible if based on the value of the vehicle but not deductible if based on weight. Enter them on line 7 on Schedule A. Sales taxes on personal (as opposed to business) purchases aren't deductible; neither are trash pickup fees, water and sewer bills and fees and fines.
INTEREST: You generally can deduct all of your home mortgage interest if the loan totaled $1 million or less and was used to buy, build or improve your home. You also may be able to deduct interest on home equity loans, for other purposes, of up to $100,000. If any of your loans were taken out on or before Oct. 13, 1987, you might be able to deduct more.
Most lenders will send you a Form 1098 detailing how much you paid in 1995. See Publication 936 for more information.
You can deduct ``points'' - advance interest - you paid to buy a home if charging points is the general practice of lenders in your area. You also can deduct points paid on your behalf by the seller of the home you purchased.
However, points paid to refinance a mortgage must be deducted over the life of the loan, unless part of the proceeds were used to improve your main home.
Personal interest isn't deductible. But interest incurred for investment purposes, such as on a margin account at a stock broker, is deductible. Publication 550 explains.
CHARITABLE CONTRIBUTIONS: Contributions of money or property to qualified charities are deductible. These include churches and synagogues; non-profit schools and hospitals; groups like the Salvation Army, Red Cross, Goodwill Industries and scouting organizations. Expenses you incur when serving as a volunteer may also be deductible.
You can't deduct the value of blood you donate or contributions to individuals, lobbying or political groups, or contributions made in exchange for raffle and lottery tickets.
You must obtain a written acknowledgment for all charitable contributions of $250 or more. A canceled check isn't good enough.
If you get something in exchange for a contribution, such as dinner or a sweat shirt, the value must be subtracted from the amount of the contribution. If your contribution was more than $75, the charitable organization must give you a statement stating the value of the goods or services you received.
You must attach a Form 8283 if you claim a non-cash contribution over $500. See Publication 526.
CASUALTY AND THEFT LOSSES: Losses that aren't covered by insurance from theft, disasters, storms, fires and accidents are deductible. You need to fill out Form 4684. Publication 547 explains the rules. Publication 584 is a workbook to help you list your damaged goods and figure the loss.
MOVING EXPENSES: Moving expenses are subtracted from income on the front of Form 1040, line 24. You'll need Form 4782, from your employer, and Form 3903. Your new workplace must be at least 50 miles farther from your old home than your old job was. See Publication 521.
JOB EXPENSES AND MISCELLANEOUS: You can deduct a variety of expenses that, when combined, exceed 2 percent of your adjusted gross income. These include: unreimbursed employee expenses for travel, education, professional publications and tools; union dues; tax-preparation fees and safe-deposit box rental.
For job expenses, you may need to fill out Form 2106 or the simpler, 12-line Form 2106-EZ. See Publication 529.
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