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Schedule A -- Itemized Deductions on the US Expat Tax Return

 

 

IJ Zemelman

 

Did you have a lot of deductible expenses during the tax year? You may be able to use Schedule A to itemize your deductions and get a better tax return than you would by claiming a standard deduction.

 

When you file your US expat tax return, you have the option of either claiming the standard deduction made available to you by the IRS or itemizing your deductions on Schedule A. Some people do not have enough expenses to justify itemizing deductions, but that is not the case with many expats; individuals living and working abroad tend to have a lot more expenses than those living stateside. Before we take a look at Schedule A and the itemized deductions available to US taxpayers, let’s take a brief look at the standard deduction.

 

Generally speaking, the standard deduction increases every year and is different for every filing status. Take a look at the standard deduction for previous years and the most recent updates to the standard deduction below.

 

Tax Year

Single

Head of Household

Married Filing Jointly

Married Filing Separately

2008

$5,450

$8,000

$10,900

$5,450

2009

$5,700

$8,350

$11,400

$5,700

2010

$5,700

$8,400

$11,400

$5,700

2011

$5,800

$8,500

$11,600

$5,800

2012

$5,950

$8,700

$11,900

$5,950

 

 

By taking a quick look at your filing status and the standard deduction available to you, it will be easy to add up your itemized deductions for the year and see which is higher. Whichever is highest will be the one in your best interest to claim.

 

Schedule A

 

Schedule A is broken up into 7 sections with a different cost category for each section. Depending on your profession and your expenses or losses, there may be other forms required to complete certain sections of Schedule A. We will now take a look at each section of this schedule and discuss each category briefly.

 

Medical and Dental Expenses

 

On one hand, medical expenses during the tax year are deductible; on the other hand, you may not claim more in medical expenses than 7.5% of your AGI (Adjusted Gross Income) for that tax year. If you incurred a lot of medical expenses you may not be able to claim the entire amount, depending on your AGI.

 

Expenses you may claim with this deduction include: Amounts you paid out of pocket to doctors, nurses, clinics and hospitals; prescription drug costs; medical insurance premiums, assuming they were paid by you with after-tax income; and mileage for your trips to doctors, hospitals, clinics, and pharmacies. Expenses you are not able to claim with this deduction include: Cosmetic surgery, gym memberships, over-the-counter medication, insurance premiums paid by your employer, and insurance premiums which were paid prior to taxes being deducted from your salary.

 

Taxes You Paid

 

This section of Schedule A is only for claiming taxes which were incurred within the United States; it is not for foreign taxes. To claim a deduction for foreign taxes on your individual US expat tax return, use Form 1116. If you are required to pay state taxes as a US Expat, you may deduct those taxes on this section. You cannot, however, deduct any penalties or interest charged to you for having filed or paid late. If you made purchases from the United States and paid any sales tax, you may also deduct that here. More commonly for expats, there is an available deduction for vehicle excise taxes and real estate taxes. It’s important to realize that foreign real estate taxes are claimed separately.

 

Interest You Paid

 

If you own at least 1 home on which you carry a mortgage, this section alone will most likely make your itemized deduction larger than the available standard deduction. Here, you are able to claim all mortgage interest and mortgage insurance premiums you paid during the tax year. You may also claim any points incurred from home mortgages and mortgage interest on both your first and second home. If you have investment property or other investments on which you paid interest, you may also claim that here.

 

Gifts to Charity

 

The deduction for charitable donations is one of the most common deductions to be misunderstood. In order for your donation(s) to one or more charities to be deductible, the charitable organization must be tax exempt and it must be formed either in the United States or in a country which has an active treaty with the US allowing deductions for that specific charity, such as Canada or Mexico.

 

Donations to qualifying charities may be made either in cash or goods, and donated items worth $500 or more must include a written statement from the organization outlining various details of the transaction. Additionally, any valuable item such as a home or vehicle worth over $5K will require an appraisal to be sought and included with Schedule A and filed with your US expat tax return.

 

Casualty and Theft Losses

 

This deduction allows you to claim losses which were incurred as a result of theft or a casualty such as fire, a natural disaster, or a shipwreck. If you are claiming this deduction, you will be required to provide detailed information about your loss on Form 4864. Items you are able to claim include your home, personal household items, and your vehicle. You are not able to claim cash or misplaced property, items damaged from progressive use or exposure, or items which were broken as a result of an accident not considered a severe casualty. Furthermore, you may not deduct any losses which were covered by insurance.

 

Job Expenses and Certain Miscellaneous Deductions

 

Here, you are able to claim expenses associated with your job, but you can only claim expenses that exceed 2% of the AGI (Adjusted Gross Income) figured on Form 1040. Also, you may only deduct work related expenses which were not reimbursed by your employer. If you paid to have your US expat taxes prepared, you may deduct the cost of preparation here, as well. If you are an entertainer or performer, there are additional deductions available to you which can be claimed by filling out Form 2106 and attaching it to Schedule A.

 

Miscellaneous Deductions

 

Here you may claim a variety of other expenses which are not outlined in other categories. Many taxpayers claim gambling losses on this section, for example. If you are claiming gambling losses, remember that you cannot claim an amount that exceeds the amount of your gambling winnings. You may also claim items such as losses occurred as the result of a partnership, the cost of impairment devices or accommodations used to enable a disabled person to work, any pension investments which wound up as a loss, federal estate taxes, amortizable bond premiums, and certain other expenses which are outlined in IRS Publication 529.

 

Important Considerations about Schedule A

 

Many deductions available on Schedule A have limitations and should be calculated carefully after reviewing the Schedule A Instructions for the corresponding tax year for which you are filing. This article offers insight to each section of Schedule A for the purpose of informing you of all the deductions available to you; it does not provide sufficient information to complete Schedule A without referencing related instructions and publications issued by the IRS. It is important that you fully understand the requirements and limitations of each deduction so that your return is in accordance with US tax laws and regulations.

 

Zemelman

I.J. Zemelman, EA is the founder of Taxes for Expats
She may be reached at: +1-646-397-2887
Email: questions@taxesforexpats.com
Web site: www.taxesforexpats.com