Above-the-line refers to amounts above the adjusted gross income threshold. Adjustments are considered above-the-line adjustments if they are subtracted from your gross income.
For example, if you have invested $2,000.00 in an IRA, this $2,000.00 is considered an above-the-line adjustment.
Adjusted gross income is your gross income minus any adjustments. It is the amount from which deductions (the standard deduction or itemized deductions) and the value of personal and dependent exemptions are subtracted to arrive at the amount that will be taxed.
Adjustments are amounts subtracted from your gross income to arrive at your adjusted gross income and include the following:
Deductible contributions to IRAs (individual retirement accounts)
Contributions to your health savings accounts
Some job-related moving expenses
Any penalty paid on early withdrawal of savings
One-half of the self-employment tax paid by self-employed taxpayers
Alimony payments
Tuition and fees adjustments
Student loan interest
Self-employed SEP and SIMPLE and qualified retirement plans
Self-employed medical insurance adjustment
Deduction for clean-fuel vehicles
Certain business expenses of reservists, performing artists, and fee-basis government officials
Appreciated property is property that has increased in value over time. Often called capital gain property, it includes investment properties such as stocks, bonds, or collectible property such as baseball cards or antiques. To claim the appreciated value as the fair market value when donating this property, you must have held the property for over a year. There are special limits to how much you can claim as a deduction when donating appreciated property. For more information, see Charitable Deduction Limits in H&R Block’s Guide to Charitable Deductions and Tax Planning.
Capital gain property is property whose sale at fair market value on the date of the donation would have resulted in long-term capital gain. Capital gain property includes capital assets held more than one year.
A carryover is when you take part of a deduction in a year following the first year in which you originally took the deduction.
You can carry donations that exceed the yearly limit into the next year until you reach the total amount of the deduction or up to five years, whichever occurs first. Total deductions cannot exceed 50 percent of your adjusted gross income in any year.
You must figure the same percentage limits for carryovers that you originally used. For example, donations subject to the 20 percent limit are still 20 percent limit contributions.
For each category of donation, you can deduct the carryover only after first deducting all allowable donations in that category for the current year. If you have carryovers from two or more previous years, use the carryover from the earlier year first.
For more information, see Charitable Deduction Limits in H&R Block’s Guide to Charitable Deductions and Tax Planning.
Cash donations include any of the following made to a qualified organization:
Cash
Checks
Credit card transactions
Payroll deductions
Automatic withdrawals from your bank account
A charitable donation is a donation or gift to, or for the use of a qualified organization. Donations are voluntary and are generally made without receiving anything of value in return.
The amount you originally paid for the property you are donating. Special rules apply regarding the cost/adjusted basis of assets acquired by gift or inheritance.
An amount that is subtracted from the tax you are required to pay.
For example, if your tax due is $1,245.00 and your child care tax credit figures out to be $325.00, your tax due would be $920.00.
Other examples of credits are:
Hope and lifetime learning credits
Child tax credit
Retirement savings contributions credit
Adoption credit
The date acquired field holds the date on which you originally acquired the property or goods. This field is required on Form 8283 when you are donating an item or a group of similar items donated at one time worth over $500.
The date acquired is important because it determines if you’ve held an item longer than a year. If you own appreciated property worth more than $500 for less than a year, you can deduct the lesser of the cost/adjusted basis or the fair market value. If you’ve owned the property longer than a year, then your deduction is equal to the fair market value.
Some special rules apply regarding assets acquired by gift or inheritance. For more information, see Inherited Property and Gifts in H&R Block’s Guide to Charitable Deductions and Tax Planning.
In DeductionPro, the deduction amount is the amount that will be reported on your tax return as a deduction. It is also used by DeductionPro to calculate your estimated tax savings.
For cash or out-of-pocket expenses, the deduction amount is equal to the cash value of your donations.
For the year 2006, the mileage rate is generally 14 cents per mile. However, the amount you can deduct if you used your vehicle for charity work related to Hurricane Katrina during 2006 is 32 cents per mile. Congress is allowing a special mileage rate to help people who volunteer their time for hurricane relief efforts.
For noncash donations, the deduction amount is equal to the fair market value of the property, except in the case of short-term appreciated property (property you held for less than one year). For such donations, the deduction amount is the lower of either the cost/adjusted basis or the fair market value.
These are amounts subtracted from your adjusted gross income such as:
Charitable donations
Unreimbursed medical expenses over 7.5% of your adjusted gross income
State and local income tax, real estate tax, and personal property tax
Home mortgage interest
Casualty and theft losses
Unreimbursed employee expenses
Miscellaneous deductions
Donation type describes the general categories of noncash donations. There are three donation types in DeductionPro:
Clothing and household Items
Stocks, Bonds, & Mutual Funds
Art & Collectibles
Eligible charity is another term for qualified organization. It is a charity recognized and registered with the IRS. Eligible charities are nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. See Qualified Organization in H&R Block’s Guide to Charitable Deductions and Tax Planning or "Organizations That Qualify to Receive Deductible Contributions" in IRS Publication 526 for more information and a sample list of charities.
DeductionPro calculates your estimated tax savings based on IRS averages and assumptions, as well as the filing status, and estimated total income that you enter in the program. The amount calculated is an estimate, and may not reflect the actual amount you save when you complete your tax return.
Your estimated total income is an informed estimate of what you think your gross income for the tax year will be. This amount is the total of your income before deductions. H&R Block DeductionPro uses this figure along with your charitable donations and other deductions to estimate your tax savings.
The fair market value is the amount the market will bear for property or goods you have donated. Generally, this is the amount that you might pay in a store for the item if you bought it in its present condition.
Factors that affect the fair market value are:
Cost or selling price of the item
Sales of comparable properties
Replacement cost
Opinions of experts
For detailed information about the fair market value of an item, refer to IRS Publication 561, Determining the Value of Donated Property or Form 8283, Noncash Charitable Contributions.
Filing status on your federal tax return is a category that identifies you based on your marital and family situation, according to the IRS. It is an important factor in determining whether you must file a return, the amount of your standard deduction, and the correct amount of tax you must pay. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.
There are five possible filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your marital status on the last day of the year determines your status for the entire year.
DeductionPro uses your filing status to determine your deductions and calculate your estimated tax savings. For more information, see How does my filing status affect my account?.
Use Form 8283 to report information about noncash charitable donations you made throughout the year when one of those donations exceeds $500. Do not use Form 8283 to report out-of-pocket expenses for volunteer work or donations you made by check or credit card.
Itemized deductions fall into the following categories:
Medical and dental expenses
State and local income taxes
Real estate and personal property taxes
Home mortgage and investment interest
Charitable donations
Casualty and theft losses
Job expenses
Miscellaneous deductions
For more information about itemized deductions, see Standard Deduction vs. Itemized Deductions in H&R Block’s Guide to Charitable Deductions and Tax Planning.
See also any of the following, available on the IRS web site at www.irs.gov:
IRS Publication 501, Exemptions, Standard Deduction, and Filing Information
IRS Publication 17, Your Federal Income Tax
There are two ways to account for miles: you can use the standard mileage allowance or you can keep track of actual expenses.
If you use the standard mileage allowance method, enter the number of miles you traveled for a qualified organization in the Miles field. DeductionPro automatically multiplies the number of miles you enter by the rate per mile, which changes from year-to-year based on a figure determined by the IRS. This rate covers all the costs of operating your car except parking and tolls.
Note: Parking tickets, traffic violations, and fines are never deductible.
For information about using actual expenses to account for miles, see Mileage Expenses in H&R Block’s Guide to Charitable Deductions and Tax Planning.
Noncash donations are contributions you make by giving away property. Some examples of noncash donations are clothing, toys, and computer equipment.
DeductionPro sometimes uses the term organization to describe the qualified organization to which you make donations.
See also eligible charity and qualified organization.
Out-of-pocket expenses are non-reimbursed expenses you incur on behalf of a qualified organization or while making a donation. Some examples are:
Miles you traveled driving to a soup kitchen
Purchased price of juice and food for a Red Cross Blood Drive
Expenses girl scout and boy scout leaders pay for supplies
The supplies and materials you used making baskets for the Pine Street Inn Homeless Shelter
Safety equipment (gloves, goggles, etc.) you purchased to use while working for Habitat for Humanity
You can make a charitable donation using one of the following payment methods:
Cash
Check—This is considered delivered the day you mail it or have it delivered
Credit card—This is considered delivered the day you make the charge
Payroll deduction—This is considered delivered when the amount is withdrawn automatically on the date you receive the check. The date appears on your pay stub.
Other—Debit card payments, electronic transfers, or automatic withdrawals from your checking or savings account
The primary taxpayer is the first name listed on your tax return.
A qualified organization is a charity recognized and registered with the IRS. Qualified organizations are nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. See "Organizations That Qualify to Receive Deductible Contributions" in IRS Publication 526 for more information and a sample list of charities.
Quality is one factor used to determine the physical condition and overall value of property or items that you donate to a charity. The quality of property helps to establish the fair market value for the goods that are donated. For more information on how to assess the quality of an item, see How do I determine the quality of my donated item?
A recurring donation is the type of donation you make when you give the same amount of money to a qualified organization on a regular basis. You can have DeductionPro enter all these donations at once without having to enter each one manually. For more information, see .
The IRS uses Schedule A to determine your itemized deductions. If you file Schedule A, you must file Form 1040 as well.
The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. Taxpayers who don’t itemize deductions (such as medical expenses, charitable donations, and taxes, on Schedule A of Form 1040) use the standard deduction.
See Standard Deduction vs. Itemized Deductions in H&R Block’s Guide to Charitable Deductions and Tax Planning.
See fair market value.