TAX STANDARD
DEDUCTION OR ITEMIZED DEDUCTIONS HELP ADVICE IRS FEDERAL
INCOME INFORMATION STRATEGY IDEAS
INFO FREE
EDUCATIONAL ARTICLE
Basic
information on tax deductions.
TAX
HELP: STANDARD DEDUCTION OR ITEMIZED DEDUCTIONS
There is
probably more confusion over Federal Income Tax
laws than any other thing the average American
citizen will deal with.
This is,
admittedly by the IRS, slightly on purpose.
Every credit, deduction, and adjustment comes
with it’s own set of rules and qualifications.
The myriad of tax complications can make your
head spin if you let it.
One of
the areas of confusion that can be somewhat
easily cleared up is the election of the
Standard Deduction or Itemizing Deductions.
STANDARD
AND ITEMIZED DEDUCTIONS
What is a Deduction?
To better explain the difference between
the two, you first need to know what a deduction is. In the case of the
Standard Deduction, this is a dollar amount set depending upon your filing
status that you take away from your adjusted gross income before figuring
your tax. The same is basically true of Itemized Deductions, however, you
have the opportunity to increase the amount of deductions by itemizing if
you qualify and have more deductions than the Standard Deduction dollar
amount.
Confused yet? Let’s break it down a little more. For the tax year 2004, the
Standard Deductions were $4850 for Single filers, $9700 for Married Filing
Joint, and $7150 for Head of Household filers. These were the amounts that your
would claim as your Standard Deduction, lessening your taxable income by this
amount. Now, if you were married filing jointly, and wanted to Itemize
Deductions, you would need more than $9700 for it to be beneficial to you.
Anything less would make your taxable income higher therefore increasing the
amount of tax you would be responsible for.
Itemizing deductions will take a little extra work and research. You must know
how to figure the different deductions on the form (Schedule A) and be able to
correctly total your deductions. There are many factors and a few limitations in
itemizing you need to know about. For example, your out of pocket medical
expenses are the first item on a Schedule A. This includes all of your co-pays,
premiums, deductibles and even mileage to and from your doctor, dentist or
optometrist. The total of these amounts is subject to seven and a half percent
of your adjusted gross income, meaning that anything over the seven and a half
percent will be counted, not the total amount.
Sales tax and state and local income tax totals are also on the form Schedule A.
Home mortgage interest, closing costs on the purchase of your first and/or
second home, charitable contributions, and a variety of business expenses are
also on this form and each subject to their own phase out ranges and
limitations. Lastly, the amount of your total adjusted gross income may limit
your total itemized deductions as well. Keep in mind that you will need to keep
records and or receipts for each item on your itemized deductions in the event
of an IRS audit.
For most people, it is worth doing some estimating to see if they can qualify to
itemize their deductions each year, especially if they are dealing with high
mortgage interest on their home. There are more items on the Schedule A than are
listed here, so doing a little research on your personal situation might prove
beneficial to you in the long run. A little research may save you a lot in tax
dollars!
To
teach and learn more money skills, personal finance, and money
management, please go to the Money
Instructor home page.
Tax Tips on Standard
Deductions and Itemized
Deductions 2004 2005 -
Dependent married
federal income tax
exemption Question Successful Techniques - Suggestions -
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Tax Information
Basic
information on tax deductions.
To
teach and learn more money skills, personal finance, and money
management, please go to the