Have you ever thought about your options when it comes to deductions and your tax return? You are not alone. Many people use the 1040EZ or the standard 1040 form and that’s that. Here are some facts concerning both types of deductions.
Standard deduction is a fixed amount that is deducted depending on your tax filing status. The highest deduction goes to individuals who file Married, Filing Jointly, Qualified Widow, and Head of Household. A lesser amount is given to those with a status of Single or Married, Filing Separately. This amount may change if the IRS deems it fit to raise the amount, but only then.
You also have another option when it comes to deductions. This is called itemized deduction. Some people think that you have to be rich to itemize. Others don’t know what itemization is and thus figure that it is not for them. However, itemization can be done by anyone who files taxes. If you suspect that the itemized deductions may exceed the amount authorized by the IRS for a standard deduction, choose the former.
Itemization involves adding up expenses that are deemed deductible according to the IRS. Now, some categories of deductions have a threshold limit that must be reached before you can take a deduction. But I’m getting ahead of things. Let’s start at the beginning.
Itemizing lowers your taxable income. How does it do this? Qualified expenses that you have paid may be tax deductible under the law. Any amount that can be shaved off of your income lowers the amount that is taxed by the government and works in your favor.
For example, let’s say that you work from your home. You work in a room that is set up as an office. The equipment in this room is used solely for business purposes and you take conference calls or meetings with clients in that room. According to the IRS, that room of your house can be deducted under home office expenses. Not only can you deduct the equipment, supplies, and furniture, but also a portion of the mortgage, electric and gas bills and the telephone bill.
There are other particulars to this example, but you can find more information on that at www.irs.gov. The same applies to uniforms that you purchase for a job. The cost of cleaning and purchasing those items is an itemized deduction. Charitable contributions in the form of money and goods are itemized deductions. There is a wealth of deductions that you could qualify for. It is worth a bit of extra time to check them out.
So, standard or itemized? I suggest trying both paths and seeing which is the best for you. Read the explanation of each category carefully so you don’t make a mistake. Have a tax professional or use tax software to check your work.