Filing a tax return can be pure tedium, even for those of us who made sure to try to keep records of our spending. In between my usual Twit surfing for concerts, news, and shopping deals, I got to tweeting with a friend about (dun dun dun dun) filing tax returns. Specifically, we were discussing the difference between standardized and itemized deductions and which would work best for us.
Here’s the nitty gritty—understanding the difference between a deduction and a credit is important. A deduction reduces your adjusted gross income (agi) thereby reducing your taxable income. The issue is figuring out which deduction – standard or itemized – is more advantageous. First, it’s important to know that if your deductions, i.e., medical, miscellaneous, and charitable, do not exceed your standard deduction—listed below for 2009—it may be more beneficial to go with the standard deduction.
Additionally, there are rules and limitations that you must take into account when you assess your financial picture that will determine which method is best for you. For example, most taxpayers who own homes may benefit more by utilizing itemized tax deductions due, in part, to interest paid on the home’s mortgage.
Standard deductions are usually adjusted with inflation and, for 2009, are as follows:
- Single $5,700
- Head of Household $8,350
- Married Filing Jointly $11,400
- Married Filing Separately $5,700
Remember, the standard deduction is higher for taxpayers 65 and older or blind.
To complete an itemized tax return, you’ll have to fill out Form A and attach Schedule A, which divides your itemized tax deduction into six major categories:
- medical and dental expenses
- state and local taxes
- gifts to charity
- casualty and theft losses
- miscellaneous deductions
For more on deductions and filing taxes, check out IRS.gov and selftax.com.