If your income is over $137,000, you might find a big surprise on your tax return...lost deductions! And, of course, lost deductions means you pay more tax.
Itemized deductions such as mortgage interest, state, local, and property taxes, and charitable donations phase out as income passes the designated threshold amount. That designated threshold amount for a married couple (filing jointly) is over $137,000.
For every dollar that your income is more than that threshold, you lose 3 percent of most itemized deductions. (Medical expenses, investment interest, and casualty, theft, or wagering losses are not subject to this limitation.)
This comes as a big (and bad) tax surprise to many taxpayers who get a raise and, following standard advice from their banker or accountant, buy a bigger house for the added deductions. They end up losing some of the mortgage interest deduction.
And, even more sad, those high income taxpayers who believe in charitable giving will find that they lose a significant part of their charity deduction as well. The government is cutting social programs from their budget. This forces the charities to rely on individual contributors.
But the charities are losing contributors as the high income taxpayer loses the tax benefit. This deduction phases out too!
This itemized deduction phase-out is in addition to the loss of medical expenses and miscellaneous deductions that are built into the system. These deductions are limited based on a percentage of your income.
For example, your medical expenses are only deductible when they are more than 7.5 percent of your adjusted gross income. As your income increases, the 7.5 percent calculated exclusion increases and so you lose part of your medical expenses deduction!
But wait! That's not all! You also lose your exemptions as your income increases. As your income increases over $206,000, you lose progressively more of the exemption deduction for yourself, your spouse, and your dependents.
High income earners also lose offsets from real estate losses against their income (lost at $150,000 adjustable gross income) and the ability to use strategies such as the ROTH IRA, which allows your money to grow tax free.
Sometimes it just costs more to make more.
Itemized deductions such as mortgage interest, state, local, and property taxes, and charitable donations phase out as income passes the designated threshold amount. That designated threshold amount for a married couple (filing jointly) is over $137,000.
For every dollar that your income is more than that threshold, you lose 3 percent of most itemized deductions. (Medical expenses, investment interest, and casualty, theft, or wagering losses are not subject to this limitation.)
This comes as a big (and bad) tax surprise to many taxpayers who get a raise and, following standard advice from their banker or accountant, buy a bigger house for the added deductions. They end up losing some of the mortgage interest deduction.
And, even more sad, those high income taxpayers who believe in charitable giving will find that they lose a significant part of their charity deduction as well. The government is cutting social programs from their budget. This forces the charities to rely on individual contributors.
But the charities are losing contributors as the high income taxpayer loses the tax benefit. This deduction phases out too!
This itemized deduction phase-out is in addition to the loss of medical expenses and miscellaneous deductions that are built into the system. These deductions are limited based on a percentage of your income.
For example, your medical expenses are only deductible when they are more than 7.5 percent of your adjusted gross income. As your income increases, the 7.5 percent calculated exclusion increases and so you lose part of your medical expenses deduction!
But wait! That's not all! You also lose your exemptions as your income increases. As your income increases over $206,000, you lose progressively more of the exemption deduction for yourself, your spouse, and your dependents.
High income earners also lose offsets from real estate losses against their income (lost at $150,000 adjustable gross income) and the ability to use strategies such as the ROTH IRA, which allows your money to grow tax free.
Sometimes it just costs more to make more.
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