In preparing your tax returns, you are allowed the choice of either claiming the standard deduction, or claiming itemized deductions. Your deductions (standard or itemized) are subtracted from your adjusted gross income (AGI) to figure your taxable income. Depending on which choice gives you the greater benefit, you may choose to take your standard deduction, or you may choose to claim itemized deductions; the aim here is to maximize your refund or minimize your tax liability.
The Standard Deduction
The standard deduction is a fixed dollar amount that the government allows taxpayers who do not itemize deductions to deduct from their income. The standard deduction reduces the amount of income that is taxed, and eliminates the need for many taxpayers to itemize deductions, because you can take the higher deduction of the two.
Itemized Deductions
You should itemize deductions if your total eligible expenses are more than the standard deduction amount. Also, you must itemize if you do not qualify for the standard deduction. Itemized deductions are comprised of certain eligible expenses that individual taxpayers in the United States can report on their federal income tax returns in order to decrease their taxable income. To claim your itemized deductions, you must complete Schedule A (Itemized Deductions).
The eligible expenses that you are allowed to claim on Schedule A, fall into the following broad categories:
• Medical and dental expenses.
• Taxes you paid.
• Interest you paid.
• Gifts to charity.
• Casualty and theft losses.
• Job expenses and certain miscellaneous deductions.
• Other miscellaneous deductions.
The primary objective of this article is to empower taxpayers to learn to do their own taxes. For more information on how to maximize your tax deductions, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3,” ($6.98) on TaxConnections.com
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