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Should You Itemize?
By: Richard Chapo
When you finally decide it is time to prepare your taxes, the first question is
whether you should itemize your deductions or take the standard deduction
provided by the IRS.
Choices, Choices…
Tax deductions are a very simple part of a theoretically simple tax reporting
system. If you’ve ever prepared your own taxes, you know this simply isn’t true.
Complicated tax forms can be a nightmare to fill out. Ever helpful, the IRS
gives you an option of just taking a standard deduction instead of itemizing
your deductions. So, what should you do?
The standard deduction is the easiest method because it requires no calculations
or supporting documentation of any sort. You figure out your adjusted gross
income and simply submit the amount for your classification. The amount differs
based on whether you are filing as single, married, older than 65 or have kids.
Many people scoff at the mere idea of taking the standard deduction. As with all
tax issues, deciding whether to take the standard deduction isn’t so easy. If
you have a fairly simple financial life and don’t have many deductions, the
standard deduction is almost always the best choice. For instance, if you make
$45,000 as an employee of a company, rent a residence and don’t have any major
medical bills or losses, the standard deduction is probably going to save you
more money than itemizing. Unfortunately, you can never be sure until you take a
stab at itemizing your deductions in a rough draft of a tax return.
Itemizing your deductions is exactly what it sounds like. You literally go
through your records and categorize every possible deduction. These deductions
are then subtracted from your adjusted gross income to get a final figure from
which tax is determined using the tax tables. Itemizing is the way to go if you
have significant tax deductions or tax credits in your financial life. For
instance, you almost always want to itemize if you own a home as mortgage
interest can be deducted. Generally, you want to itemize if you own a home, have
significant medical bills, can claim a tax credit or suffered some type of major
loss. Obviously, there are other situations where itemizing makes sense, but
this gives you an idea of the situation.
If you have a simple financial situation, claiming the standard deduction may be
the answer. If life is a bit more complicated, itemizing is probably going to
save you more on your tax bill.
About the Author:
Richard A. Chapo is with http://www.businesstaxrecovery.com - recovery of
business taxes through tax help and tax relief. Visit http://www.businesstaxrecovery.com/articles
to read more business tax articles.
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