The Daily Deduction

To Itemize or Not to Itemize?

 

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This is a common question.

Preparing your taxes through eSmart Tax will automatically calculate which method is best for you, but it’s reassuring to know how to decide for yourself.

Liberty Tax reminds taxpayers that they can choose to claim the standard deduction, which means deducting a flat amount.  Or they can itemize their deductions and subtract certain items and expenses on Schedule A.  Itemized deductions include home mortgage interest and points paid in the year of a home purchase, medical and dental expenses, deductible taxes, interest expense, charitable contributions, employee business expenses, and other miscellaneous expenses. 

The IRS site provides a list of seven factors that can help you decide which is best for you:

The following seven facts from the IRS can help you choose the method that gives you the lowest tax liability.

  1. Qualifying expenses - Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.
  2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2012, the amounts are:
            Single     $5,950
            Married Filing Jointly   $11,900
            Head of Household   $8,700
            Married Filing Separately  $5,950
            Qualifying Widow(er)  $11,900
  3. Some taxpayers have different standard deductions - The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you. If any of these apply, use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.
  4. Limited itemized deductions - Your itemized deductions are no longer limited because of your adjusted gross income.
  5. Married filing separately - When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.
  6. Some taxpayers are not eligible for the standard deduction - They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
  7. Forms to use - The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
Posted To: The Daily Deduction By: Lauryn on 3/12/2013 04:55:48 PM
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