ITEMIZED DEDUCTIONS VS STANDARD DEDUCTION
SHOULD I ITEMIZE OR TAKE THE STANDARD DEDUCTION?
While you want the larger of the two, some of the rules muddy the waters.
Your itemized deductions only help if they exceed the standard deduction. You don’t get both. So if your standard deduction is $ 10,300 and your itemized deductions total $10,400, you only get $100 benefit by itemizing. And in the 25% bracket that is $ 25.00 less tax than if you did not itemize. But there is still more to consider:
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Deductible State taxes:
You can deduct either sales taxes or state income taxes, not both.
Deductible Medical Expense
You can only deduct medical expense to the extent that it exceeds 7½ % of your Adj Gross Income. If your Adj Gross income was $ 140,000 and you paid $ 10,600 in medical expense, you would only get a benefit of $100. [$10,600 –(140,000 X .075)] or $10,600 - $10,500.
While you want the larger of the two, some of the rules muddy the waters.
Your itemized deductions only help if they exceed the standard deduction. You don’t get both. So if your standard deduction is $ 10,300 and your itemized deductions total $10,400, you only get $100 benefit by itemizing. And in the 25% bracket that is $ 25.00 less tax than if you did not itemize. But there is still more to consider:
Click here to add Tax Man to your Google Reader or Home page:
Link to TAX MAN: http://wwwtaxman.blogspot.com/
Deductible State taxes:
You can deduct either sales taxes or state income taxes, not both.
Deductible Medical Expense
You can only deduct medical expense to the extent that it exceeds 7½ % of your Adj Gross Income. If your Adj Gross income was $ 140,000 and you paid $ 10,600 in medical expense, you would only get a benefit of $100. [$10,600 –(140,000 X .075)] or $10,600 - $10,500.
Then you would need to add that $ 100 to your deductions for taxes, interest, contributions and other itemized deductions to see if theyt exceeded your standard deduction
Deductible Employee Business Expense:
Like the medical expense, it is reduced by a percent of AGI (but only 2%). There are some other deductions also subject to the 2% reduction.
Some things are deductible whether you itemize or not:
Archer MSA deduction, Health Savings Accounts, IRA contributions if you qualify, Penalty on early withdrawal of savings, alimony, student loan interest, and a few others.
Better yet, some things come off your taxes instead of your taxable income:
Examples: Earned Income credit, additional child tax credit, telephone tax refund. These are called 'refundable' credits and you could get a 'refund' even if you owe no tax and have had no withholding or other payments of taxes.
Non-Refundable credits:
These reduce your tax. They can wipe out your tax, but cannot create a refund.
Examples: Foreign tax credit, child care expense, education credits, retirement savings contribution credit, residential energy credits, child tax credit and a few others.
If you need IRS forms or publications:
http://www.irs.gov/formspubs/index.html
This information is not intended to be advice to the recipient.In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.
http://www.irs.gov/formspubs/index.html
This information is not intended to be advice to the recipient.In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.
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