Phase outs & Limitations
Here’s some stuff you should be aware of.
Individuals only have certain things you can deduct. Lines 23 to 36 on your 1040 under adjustments, and schedule A, itemized deductions. Few clients have much on the 1040, but most have deductions on schedule A. That’s it. Every one of them have their own line item on the tax return. If you’re a business owner anything can be deducted and they aren’t pre-determined.
Here are the issues.
If you earn more than $300,000, your itemized deductions will be phased out at the rate of 3% of AGI. On a million in AGI this amounts to $30,000.
The limit on contributions is 10% of AGI (adjusted gross income). Anything in excess can be carried forward, but only for five years. Then it drops off. Obviously if it’s church related, or if it’s a national association, that’s a contributions regardless of which way you cut it. But if it’s the local swim club, or something else local, perhaps it has a goodwill purpose for your business. Cut the local checks out of your business and the others from personal.
If you have medical bills, only the amount in excess of 10% of you AGI will be deducted. If you earn $100,000, the first $10,000 isn’t deductible. Only the excess. And so on and so forth up the ladder. There are ways to deduct your medical expenses, but I won’t go into it here.
If you have a mortgage(s) over a million dollars, only the interest on the first million dollars is deductible. They are paying a lot more attention to this right now. If you try to deduct it, they will probably catch you.