Calculating Itemized Deductions on Schedule A

This exercise will help you practice using Schedule A to calculate itemized deductions and understand how these deductions can impact an individual's tax liability. When preparing a tax return, it's essential to know how to determine the most advantageous deduction method for your clients or yourself.

Instructions:

Read the following scenario and answer the assignment:

Scenario: You are a tax preparer helping a hypothetical taxpayer, Jane, complete her Schedule A for the tax year. Jane provided you with the following information and receipts. Your task is to calculate the total itemized deductions for Jane based on this information.

Information for Jane:

Jane's adjusted gross income $($AGI$)$: $$80,000$

Jane is filing as Single.

She incurred the following expenses during the tax year:

Medical and Dental Expenses $($Part I$)$: $$7,000$ in qualified medical and dental expenses.

Taxes You Paid $($Part II$)$:

State income tax paid: $$3,500$

Property taxes paid on her residence: $$2,200$

Interest You Paid $($Part III$)$:

Mortgage interest on her primary residence: $$6,800$

Mortgage interest on a second home: $$4,000$

Gifts to Charity $($Part IV$)$:

Cash donations to qualified charities: $$1,200$

Non$-$cash donations to qualified charities: $$800($with appropriate documentation and fair market value$)$

Casualty and Theft Losses $($Part V$)$: Jane did not have any casualty and theft losses.

Other Itemized Deductions $($Part VI$)$: Jane did not have any other itemized deductions.

Exercise Steps:

Calculate Jane's total itemized deductions on Schedule A for each appropriate section $($Part I, Part II$,$ Part III, Part IV$,$ and Part VI$).$

Ensure you use the correct limits and thresholds for medical and dental expenses as per IRS guidelines.

Add up the deductions from all the sections to find Jane's total itemized deductions.

Compare Jane's total itemized deductions to the standard deduction for her filing status. Determine if using the standard or itemized deductions is more advantageous for her.

Provide Jane with a clear summary of her itemized deductions and explain the potential tax benefits of using itemized deductions or taking the standard deduction.

Prepare a brief recommendation for Jane, considering her tax situation and the deductions she can claim.