What about my charitable gift deductions and medical expenses?

One of the most misunderstood aspects of US Income taxes are the deductions for charitable giving and medical expenses. People hear about these deductions through word-of-mouth and assume that they will be able to take them, and come to tax preparers with a boatload of records and receipts in order to maximize their refund (or minimize their tax bill). However, there are some important limitations that make these deductions unavailable (or disadvantageous) for many taxpayers.

First and foremost, there's the fact that these are claimed as Itemized Deductions, on Schedule A. But in order for claiming itemized deductions to be beneficial to you, your total of itemized deductions must be greater than the standard deduction, which is $6,350 for single taxpayers (and $12,700 for married couples filing jointly) in 2017.

So let's say you earn a decent, upper-middle class living as a single DC resident, say $80,000. Which means you're paying a pretty hefty sum of $5,200 in state and local taxes, which are all deductible. And you were fairly generous, making $1,000 worth of charitable gifts over the course of the year. Unless you have other deductible expenses, you'd still be better off taking the standard deduction.

Second, with respect to the medical expenses deduction, not only do your total itemized deductions need to exceed the standard deduction, but the deductible amount of medical expenses is only the amount you paid over and above 7.5% of your income. Furthermore, note that these have to be unreimbursed medical expenses. Insurance premiums paid through your employer or expenses paid by insurance payouts don't count. 

So back to our example of the single person with $80,000 in income: If this person had $6,100 in unreimbursed medical expenses, only $100 would be deductible, because only expenses greater than $6,000 ($80,000 x 7.5%) are deductible.

(Note that, if the medical expenses in question were health insurance premiums that the person paid out-of-pocket and the person was self-employed, she would be able to claim the deduction in a different, more advantageous way.)

So who benefits from itemized deductions of charitable gifts and medical expenses? Well, to generalize:

• High income people (particularly those living in high-tax states). For example, a single person making over $93,500 in DC will pay enough in state taxes to make itemizing deductions automatically beneficial to her. Note: At Accutax, we don't charge for preparing your Itemized Deductions (Schedule A) if we file it only due to state and local taxes.
• People who own their own homes and have a sizable mortgage. These folks often have large interest expenses related to their mortgage, plus significant amounts of real estate taxes, both of which are deductible.