Wednesday, November 12, 2008

Standard vs. Itemized Deductions

Who should itemize and when? The IRS gives taxpayers what is called a Standard deduction allowance that is adjusted every year for inflation. This standard deduction allowance varies depending on marital status, filing status and age and it varies between $5,350 for a single person and $10,700 for married person filing jointly. Taxpayers over the age of 65 get additional standard deduction as do the blind.

Now, if your total deductions exceed the standard then you should itemize with your tax return. To itemize means that you account for expenses that you incurred during the year that are deducted from your income, thereby reducing the tax burden.

Among the expenses that a taxpayer is allowed to deduct are, home computer, hobby expenses, legal fees, rental cost for deposit boxes, gambling losses and travel expenses. The most common are medical and dental expenses, property taxes, mortgage interest and charitable donations.

It is always a good idea to consult with an accountant or a tax consultant to determine the best way to file in order to maximize deductions.

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