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WHAT IS
“ITEMIZING” AND WHEN SHOULD I ITEMIZE MY DEDUCTIONS? |
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WHAT IS “ITEMIZING” AND
WHEN SHOULD I ITEMIZE MY DEDUCTIONS? By
Tiffany J. Morisue, CPA, On
your Federal tax return, there are two choices – taking the standard
deduction or itemizing deductions.
Which one you take each year on your tax return typically should be the
greater of the two as it is deducted from your AGI (Adjusted Gross Income) in
arriving at taxable income. Taxable
income is what your actual tax liability is based on and, in turn, affects
the balance you will owe or the amount of your refund, whichever is
applicable. The
standard deduction is a fixed amount based on your filing status. These amounts generally change each
year. Taxpayers who are over 65 and/or
legally blind have a higher standard deduction amount. Itemized deductions, in a nutshell, are
those particular items that are reported on a Schedule A of your Federal tax
return. Examples of itemized
deductions include, but are not limited to, home mortgage interest, real
estate taxes, medical expenses, cash and non-cash charitable contributions,
tax preparation fees, and unreimbursed employee expenses. Of course, restrictions and limitations
apply to each of the itemized deduction items. Buying
a home is the most common event that results in itemized deductions being
higher than the standard deduction for many taxpayers. This is because the mortgage interest alone
may exceed the standard deduction for the taxpayer’s filing status. If the mortgage interest by itself is lower
than the applicable standard deduction, then the other applicable itemized
deduction items need to be added to the mortgage interest to see if the total
exceeds the standard deduction. The
standard deduction in some cases may actually be better for homeowners who
have paid off or are close to paying off their home and who do not have high
property taxes or many other itemized deductions. Every taxpayer's situation is
different. Thus, if you think that a
friend or neighbor has a similar situation to yours and itemizes, that does
not mean that itemizing is the best option for you. Furthermore, some taxpayers take the
standard deduction when itemizing would be better and vice versa. The
switch to itemizing deductions makes what may have been a simple return for a
taxpayer to complete oneself much more challenging. Changes in marital status, adding
dependents, and becoming self-employed are just a few other examples that can
change a once straight forward tax return into a more complex one. Whenever there is such a change, consider
consulting with a tax professional and having your tax returns professionally
prepared. The money you will spend on
consultation and preparation will most likely be very nominal compared to the
tax dollars you will save.
Additionally, you will have the peace of mind that the returns were
prepared to maximize deductions and you can pass on the stress of trying to
read through a mound of tax publications and instructions! By
Tiffany J. Morisue, CPA, e-mail: tiffany@abcsolutionsohio.com |
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