|
Tax Links
IRS Announces
"Dirty Dozen" Top Tax Scams
Don't Miss These Valuable Tax Deductions
Tips and
Taxes: What You Need to Know
Deducting
Employee Business Expenses
Kiddie Tax
Changes and Other Child-Related Tax Questions
Convenient Electronic Tax Payment Options
Standard
Deduction or Itemizing: Which Is Right
for You?
Tax Check: Is
Your Filing Status Accurate?
|
Which method is best for
you depends on how much
you spend for allowable deductible expenses, including mortgage
interest, property taxes, charitable contributions, and medical and
dental costs. When your actual qualified deductions exceed the
standard deduction, itemizing lowers your tax bill.
STANDARD
DEDUCTION AMOUNTS FOR 2006 RETURNS
For 2006, the standard deduction is $5,150 for single
filers and $10,300 for married taxpayers filing jointly and for
qualified widower(s). For taxpayers who file as head of household,
the standard deduction is $7,550, and married taxpayers filing
separately are eligible for a standard deduction of $5,150. The
standard deduction is higher for taxpayers age 65 or older and/or
blind.
ITEMIZING TAKES MORE EFFORT
Itemizing your deductions is exactly what it sounds like.
Using Schedule A, Itemized Deductions, go through each
category, listing all your allowable expenses. There are six main
categories of itemized deductions:
- Home mortgage interest on up to
$1 million in home acquisition debt and up to $100,000 in home
equity loan debt. You may also deduct points you paid to obtain
a home mortgage for the purchase or improvement of a principal
residence.
- Taxes, including real estate
property taxes and state and local income taxes.
- Charitable contributions,
including contributions of cash and property to qualified
organizations.
- Medical and dental expenses
that exceed 7.5 percent of your adjusted gross income.
- Miscellaneous expenses
including unreimbursed employee business expenses, certain
investment expenses, and costs you incur while job hunting. Only
those miscellaneous expenses that exceed 2 percent of your
adjusted gross income may be deducted.
- Casualty and theft losses that
are more than 10% of your adjusted gross income.
When the total of all your
itemized deductions exceeds the standard deduction, you should
itemize. Remember, the higher your itemized deductions, the
lower your taxable income and the smaller your tax bill.
NEW PHASE-OUT RULES APPLY TO 2006 TAX
RETURNS
Under current law, the deduction for itemized
expenses is phased out when your adjusted gross income exceeds
certain levels. Beginning with the 2006 tax year, this phase-out
is gradually repealed. Taxpayers will compute their 2006
phase-outs as usual, but may reduce any required reduction by
one-third.
NOT ALL TAXPAYERS HAVE A CHOICE
Under tax law, some taxpayers must itemize even if
the standard deduction would be more favorable. For example, if
you and your spouse file as married filing separately, both must
either itemize or claim the standard deduction. If one spouse
itemizes, the other spouse must also itemize, even if he or she
would get a larger deduction by claiming the standard deduction.
You must itemize if you are a nonresident alien, a dual-status
alien, or if you are filing a tax return for less than a full
year because of a change in your accounting period. Also, when a
married couple chooses to file separate returns, both spouses
must take the standard deduction or both must itemize.
CONSULT WITH A CPA
If you’re still unsure as to whether or not you
should itemize, consult with a CPA. He or she can help to
determine the right strategy for you.
Brought to you by the North Carolina
Association of Certified Public Accountants in cooperation with the AICPA.
©2007 The American Institute of Certified Public Accountants |
