Well, it’s Thanksgiving week – time to think to about everything we are thankful for -  even tax deductions!  As tax time draws nearer, now is the time to be gathering information and thinking about what deductions you will take this year and how you will take them.  The biggest question is whether you will take the standard deduction amount or whether you will itemize your deductions – and the difference often confuses people.  So here’s a basic explanation of standard vs. itemized deductions so you can decide for yourself which will be of most benefit to you.

 

1. Standard deduction – the standard deduction may be taken by any taxpayer who cannot be claimed as a dependent on someone else’s return.  The standard deduction amounts for 2009 are as follows:

• Married filing jointly – $11,400
• Head of household – $8,350
• Single (unmarried) - $5,700
• Qualifying widow(er) (surviving spouse) – $11,400
• Married filing separately – $5,700

2. There are deductions you can add to the standard deduction this year – real estate taxes ($500 or $1000 for join filers), state and excise taxes on new vehicle purchases, and net disaster losses.

3. You may find that itemizing your deductions results in a larger deduction amount than the standard.  Itemized deductions include things such as:

• Medical expenses
• Taxes – sales, etc. (if you choose to itemize sales tax you cannot take an additional deduction for the new vehicle taxes)
• Interest payments
• Charitable contributions
• Theft and casualty losses
• Unreimbursed employee business expenses
• Investment expenses
• Legal fees to earn income
• Gambling losses
• Estate tax payments on income in respect of descendents

4. Most people find that the standard deduction gives them a better tax break than itemizing deductions.  However, if you are subject to the AMT (Alternative Minimum Tax) it may benefit you to itemize deductions because the standard deduction cannot be used to lower income but certain itemized deductions can. 

5. Itemized deductions do have limits and certain deductions have income limits as well.  Also, itemizing deductions can put a flag on your return for audit, especially if the amount is significantly larger than the average for your income level.  Tax experts agree that you should take every deduction you are entitled to – just make sure you have the documentation in case your return is chosen for review.

More more information, check out J.K. Lasser’s great tax books or contact our office.