Recently, I had the miss-fortune to be hospitalized for three days without medical insurance in the state of Illinois. I itemize my deductions, but never had enough medical expense to use a medical deduction. My question is this, if your itemized deductions are greater than what you paid in taxes what happens? Is there a minimum income tax? Can you pay no taxes since the deductions are greater than the tax liability? If you zero out your tax liability and have more deductions can some of that be deducted next year? If so, would it be a straight deduction, or only help you get to the 7.5% of adjusted gross earnings (where the deduction begins)? The math statement below contains fictitious numbers, but may make my point.
$4000 paid in taxes – $2000 in other itemized deductions = a refund of $2000. Medical deduction exceeding 7.5% of gross earnings (start of deduction) $5000. $2000 deductions + $5000 medical deduction = $7000 total deduction - $4000 paid in taxes. What happens to the remaining $3000? Can this be deducted from next year, or is the deduction lost?
$4000 paid in taxes – $2000 in other itemized deductions = a refund of $2000. Medical deduction exceeding 7.5% of gross earnings (start of deduction) $5000. $2000 deductions + $5000 medical deduction = $7000 total deduction - $4000 paid in taxes. What happens to the remaining $3000? Can this be deducted from next year, or is the deduction lost?