Itemize when less than standard?

[Ranger]

I am reviewing a 2010 tax return in which an election was made to itemize when the deductions were less than $4,000 for a MFJ. The couple was in a high income tax bracket due to selling of their cow herd and farm equipment. Taxable income over $300,000.

Is there ever any reason why it would be better to take a lower amount from schedule A instead of the standard?

Thanks for any comments you might have.

[jainen]

>>Is there ever any reason why it would be better to take a lower amount from schedule A instead of the standard?<<

Must be--it's an election you can make right on Schedule A. See the instructions for line 30.

[Ranger]

I understand how the election is made. The box was checked on A and as a result over $2,000 extra tax was paid. My question is why. Is there something I am overlooking or was it a slip by the prior tax preparer?

[MsTabbyKats]

Are you absolutely sure you have the final version of the return. The preparer may have "checked the box" after he did the federal return for a state related issue...and then forgot to uncheck it when printing.

[jklcpa]

^ that's what I was thinking too, or that maybe the preparer wanted to include the Sch A in the printed package to show he/she did the work but really used the standard deduction when filing the return.

[jainen]

>>Is there something I am overlooking<<

Apparently. Did you read the instructions? It says state tax, and Pub 17 explains that further. "You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction." Another obvious possibility with $300,000 income is that AMT takes away the standard deduction anyway. There may be non-tax reasons as well, such as qualifying for loans or grants in some way, or estate planning. It seems this couple is going through a financial upheaval, and the IRS is a nice solid place to stash a few thousand dollars; they can amend later after the creditors are gone.

By the way, why are they switching accountants?

[Ranger]

Thank you for your replies. Yes, there was AMT. Client switched because sold farm from out of state and moved here.

[Guest Taxed]

Jainen has a good point? Few years back i got a call from an attorney who usually refers me a few business clients that his client needs to have a high tax bill. Forget most of the usual deductions for his business etc. Did not want to elaborate at that time. Three years later a 1040X was requested just before the deadline!

[jainen]

>>Yes, there was AMT<<

Okay, then! I guess that answers the original question--he took itemized deductions because those were the only deductions he could take. (And he's not worried about creditors anymore because he left town and even his accountant doesn't know where!)