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.

5 Overlooked Tax Deductions

Every year millions of tax retuns are filed, most of them will overlook legitimate tax deductions creating an unnecessary tax burden. The following is a list of 5 often overlooked deductions:

1. Moving Expenses.


2. Accounting Fees for tax preparation services and IRS audits.


3. Medical and Dental Expenses.


4. Taxes Paid.


5. Charitable Contributions.

Moving Expenses: Moving expenses are deductible if certain qualifications are met by the taxpayer. The move has to be work related (transfer, new job, etc...) The taxpayer must start to work within 1 year from the date he/she moved to the new location. Your new home must be closer to your place of work than your old home. Finally, your new job location must be at least 50 miles farther from your from your old home.

Accounting Fees for Tax Preparation Services: A taxpayer is allowed to deduct the cost of tax preparation services for the year that the fees were paid, including all schedules (A, C, E, etc...)

Medical and Dental Expenses: These expenses incurred by taxpayers is deductible if the cost is more than 7.5% of the adjusted gross income. Deductible medical expenses include but is not limited to: Prescribed birth control pills, non-cosmetic eye surgery, contact lenses, hearing aids and certain weight-loss treatment or interventions for the obese.

Taxes Paid: State and local income taxes paid, real estate, foreign real estate and occupational, among others.

Charitable Contributions: Most charitable contributions are tax deductible. Among them are contributions to churches and religious organizations, non-profit schools, war veteran's organizations, Salvation Army, Red Cross and most non-profit organizations.

The of allowed tax deductions is not limited to this list and many restrictions apply. As always, it is best to consult with a competent accountant or tax consultant about these and other liabilities to make sure that the amount deducted on each tax return is maximized.

Is Social Security Taxable?

Question:

I’m a 77 year old retired school teacher. In addition to social security I receive my pension. Am I subject to income tax?

Answer:

Dear retired school teacher:

The answer to your questions depends largely on other factors. I’d need to know your marital status and income information, how much you receive from Social Security and how much from your pension. I can give you some general guidelines as set out by the IRS.

_ In cases where Social Security is your only source of income, your income is not taxable.
_ If you derive income from other sources in addition to Social Security it may become taxable if your modified adjusted gross income exceeds the “base” amount for your filing status.

_ To determine your “base” amount there is a worksheet in the Form 1040 instruction booklet on page 25. (Link: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf ).

_ 2007 base amounts are:

· $32,000 for married couples filing jointly.
· $25,000 for single, head of household, qualifying widow/widower with a dependant, or married individuals filing separately who did not live with their spouses at any time during the year.
· $0 for married persons filing separately who lived together during the year.

Note: HOW TO FIGURE OUT YOUR BASE AMOUNT

1. Add one-half of the total Social Security you received to all other income, including any tax exempt interest and other exclusions from income.
2. Then, compare this total to the base amount of your filing status. If the total is more than your base amount, then some of your benefits may be taxable.

Source: http://www.irs.gov/newsroom/article/0,,id=179091,00.html

For additional questions you can contact a Tax Consultant for a free consultation.