Every American tax payer must make the decision at some point whether or not to itemize their tax deductions or just take the standard deduction. By choosing one method over the other, you will be required to fill out a different tax form.
The standard deduction is set each year by the Internal Revenue Service or IRS and is a flat rate that anyone can deduct from their taxes. The standard deduction for the 2009 year is $5,700 for singles, $8,350 head of household, $11,400 married filing jointly, and $5,700 married filing separately. Using the standard deduction is a great way to simplify taxes for many Americans who do not track their expenses or don’t incur many expenses throughout the year.
By itemizing your deductions you actually add up all of your documented expenses and deduct this amount from your taxes. Since there are several items that you are able to deduct from your 2009 taxes, you will want to know and understand all of the deductions that may apply to you. Although tax preparation software can do this for you, it is best to consult with a tax professional before filing your income taxes.
Choosing between the standard deduction and itemizing your deductions ultimately comes down to one thing – Which one is going to decrease your tax liability the most. If you can not think of any possible deductions then it may be best to file using the standard deduction and a 1040ez or 1040a form. If you have some deductions that you are able to itemize and are unsure, the best thing that you can do is grab a schedule A and start filling it out. Once you have arrived at a number, compare it to the standard deduction for your filing status. If your itemized deduction amount is larger than the standard deduction amount then the choice is obvious.
What do you plan to do with your tax return this year? Healthy Financial Habits wants to know. We have created a poll located at the bottom right of this page. Here you are able to vote to let us know how you are going to spend your money and also view the poll results.
Author: Mike Smitt