Take the Standard Deduction or Itemize?

Whether you choose to complete your tax return this year by hand, the old-fashioned way, with a multimedia interactive software package online, or by enlisting the help of a licensed tax professional, you need to be aware of the tax deductions and credits that are available to you.

Most taxpayers do claim their exemptions, and according to the IRS, $842 billion was claimed from personal exemptions in 2005. But there are many other tax credits available that may be overlooked.

“Do I choose to take the standard deduction or itemize?” That’s an important question many taxpayers will need to ask themselves prior to filing their tax return. In 2007, the standard deduction was $5,350 for single, $7,850 for head of household, and $10,700 for married or filing jointly.

 

However, in 2002, only one-third of taxpayers who filed their returns chose to itemize their deductions, according to the Government Accountability Office (GAO). The decision not to itemize turned out to be an on average loss of $438 per taxpayer, or in overall terms – $945 million.

Procrastination is the most common reason for not itemizing. Taxpayers are notorious for waiting until the very last possible hour to file their taxes. This overwhelming rush to complete their tax filing has many taxpayers losing out on the additional tax breaks that may be available to them by itemizing. Taking the time to collect tax records and the information needed for itemized deductions is well worth the time and effort.

For most taxpayers, electing to take the standard deduction or itemizing deductions can be fairly simple. Add up your real estate taxes, income taxes (state and local), and whatever mortgage interest you’ve paid. Now, compare this total against the standard deduction. If you are over 65, don’t forget that you can add an additional $1,050 if you’re married and $1,300 if you are filing single, to your standard deduction.

Many taxpayers make the mistake of not filing an itemized return, thinking that because they don’t own a home it won’t provide any significant tax break by itemizing. However, if you have had substantial medical bills, paid trustee or investment advice fees, made large donations to charity, paid substantial state sales or income tax, or had other substantial qualifying expenses, you may be pleasantly surprised to find your tax deductions work out to be far greater when itemizing than by using the standard deduction.

March 29th, 2009 by Tax Man in Tax Deductions, Uncategorized | No Comments

Top 10 Missed Tax Deductions of 2008

Tax Deductions photo You need to know about your tax breaks to know your tax deductions. There are many deductions which often taxpayers don’t remember. Only after few weeks of working out their taxes, they realize how they have missed out on the possibility of a deduction. So to ensure that next time you do not forget about these deductions, begin your preparation starting today.

Find below a list of 10 most common deductions that are missed out and how they can impact your 2008 tax bill and 2009 tax planning.

Read more…

March 15th, 2009 by Tax Man in Tax Deductions | No Comments

Top 5 Overlooked Tax Tips

However you work your taxes – the old-fashioned way, utilizing software packages or hiring a professional – it is more than worthwhile to be aware of the income tax deductions and credits which can save you money.

According to the Internal Revenue Service, the biggest claimed value comes from personal exemptions, which in 2005 came to $842 billion.  Most taxpayers, in fact, do claim their exemptions – but there are many other tax perks which may be overlooked.   Read more…

February 27th, 2008 by Tax Man in Tax Advice, Tax Breaks, Tax Deductions, Tax Tips | No Comments

Tax Preparers Cracking Down

Burden for preparers

Tax preparers may start being tougher in asking you to prove your entitlement to certain deductions. This is because a law was recently passed that requires these professionals to help weed out tax dodgers. This may result in increased paperwork and greater fees to some taxpayers since a longer amount of time will be required for preparing many returns.

Tax preparers now rely on different standards thanks to the IRS. This change is supposed to encourage preparers to be more careful about agreeing to sign returns with shady or extreme income tax deductions without warning the IRS of such behaviors through a specialized communication form.  Read more…

February 26th, 2008 by Tax Man in Tax Deductions, Tax Help | No Comments

Tax Credits and Tax Deductions – Qualification Limits

If you’ve ever stooped through a short door or tried to reach a book off the top shelf you know how uncomfortable it is to be the wrong size. The same thing is true with taxes – many tax benefits are only available to families and individuals whose AGI (adjusted gross incomes) or MAGI (modified adjusted gross income) falls within certain limits.

Calculating adjusted gross income (or AGI) is actually quite simple. Take all the income you report on your taxes, your “gross income,” minus any deductions (called “adjustments”) and what’s left is your adjusted gross income. The following items are all expenses you can legally deduct from your gross income: Read more…

February 23rd, 2008 by Tax Man in Tax Advice, Tax Breaks, Tax Deductions, Tax Tips | Comment (1)

Standard Deductions versus Itemized Deductions

What’s the difference between claiming a standard deduction vs average itemized tax deductions?  Can those being single itemize versus only the married itemizing?

Deductions are expenses the IRS allows you to subtract from your taxable income, lowering your overall tax bill. There are two ways to file deductions – using the standard deduction, and “itemizing.”

Standard Deductions

Every taxpayer is allowed to take a standard deduction. The standard deduction assumes you have an “average” amount of tax-deductible expenses, and lumps them into one easy sum based on your circumstances. For 2007, the standard deduction amounts are: Read more…

February 22nd, 2008 by Tax Man in Tax Advice, Tax Deductions | Comment (1)

5 Tips to Maximize your Tax Breaks

Tax BreaksWhat’s the difference between a taxidermist and a tax collector? According to Mark Twain, “The taxidermist takes only your skin!” Many Americans would agree with him – tax bills often seem unreasonably high. Fortunately, there are many completely legal ways to reduce your taxes and keep more of your hard-earned money for yourself and your family. They’re called tax breaks.Tax breaks are provisions of the income tax code that reduce the amount you and your family have to pay. Some people think claiming tax breaks is cheating – something greedy corporations and rich people do – but it’s not. The famous Judge Learned Hand once stated, “There is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands.” You are completely entitled to every tax break you qualify for, and not taking those breaks is only giving the IRS a gift they don’t deserve.

Here are five simple rules to remember when looking for tax breaks: Read more…

February 22nd, 2008 by Tax Man in Tax Advice, Tax Breaks, Tax Deductions, Tax Tips | No Comments

Top 10 Tax Tips for the Self-Employed

Innovative technology and the convenience that the Internet and teleconferencing brings have led more coaches, contractors, professional consultants, and freelance workers to go into business for themselves. Being self employed isn’t a means of simply generating additional income to supplement a job – it has become a full-time endeavor. A lot of full-time workers are setting their own hours while making great incomes. However, self-employed people do have distinct tax concerns. Read on for 10 helpful tax tips to reduce the bite Uncle Sam takes out of your income: Read more…

February 17th, 2008 by Tax Man in Small Business, Tax Tips | No Comments

Tax Refund Anticipation Loan – Consumer Advisory

This tax season 10% of Americans will let someone borrow them their own money through a tax refund anticipation loan.  Rates might be as high as 744%.  A rapid refund is just your income tax refund given to you on the spot by your tax preparation service- usually within 1-2 days.  Rather than waiting for your tax return to come through the mail or via direct deposit directly from the government some people are choosing to get money in their pockets immediately at a great expense to themselves.  Despite the length of the loan lasting only about 10 days they are costing individuals hundreds of dollars in some cases.  Read more…

February 12th, 2008 by Tax Man in Tax Advice, Tax Help | No Comments

Homeowner Tax Deductions

Homeowner Assistance for 2007

Increasing the amount for AMT exemptions was one of many changes in tax law during 2007. The federal legislature also made possible tax deductions for persons facing home foreclosures, as well as those purchasing mortgage insurance policies last year.

Mortgage insurance is mandatory in cases where buyers put down less than one-fifth of the purchase price of a home and are using government-subsidized or private banking loans. The premium for this policy is deductible for up to two homes, but only if the insurance contract was signed in 2007.

Read more…

February 10th, 2008 by Tax Man in Real Estate, Tax Deductions | No Comments



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