Dec 4, 2008

When to use Standard or Itemized Deductions

What is a party-goer’s favorite opening line when trying to get to know someone?

Answer: 'Hey, did you use itemized deductions on your tax return?'

Ok, maybe that line might not work but at least you tried! Seriously, learning the basics about standard and itemized deductions could have a major impact on your income tax return. After computing adjusted gross income (AGI), a taxpayer is entitled to subtract certain deductions used to figure taxable income. Most taxpayers have a choice between taking the standard deduction and using itemized deductions.

Use the Standard deduction if:

• Your standard deduction is more than the total itemized deductions.

• You are not filing a tax return with a short tax year

• You are not a nonresident or dual-status alien during the year

• You are filing as married filing separately, and your spouse did not itemize their deductions.

Use Itemized deductions if:

• You cannot take the standard deduction

• Your total itemized deductions are more than the standard deduction

• You had large uninsured medical and dental expenses

• You had various miscellaneous expenses

• You paid taxes and interest on personal residence

• You had large casualty or theft losses

• You made large charitable contributions

• When choosing to itemize your deductions, remember to have official documentation to prove your claims. You never know when the IRS will choose to audit your return.

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