What does itemizing taxes mean

what does itemizing taxes mean

On your Federal tax return, there are two choices - taking the standard deduction or itemizing deductions. Which one you take each year on your tax return typically should be the greater of the two as it is deducted from your AGI (Adjusted Gross Income) in arriving at taxable income. Taxable income is what your actual tax liability is based on and, in turn, affects the balance you will owe or the amount of your refund, whichever is applicable.

(PRWEB) November 3, 2004

On your Federal tax return, there are two choices - taking the standard deduction or itemizing deductions. Which one you take each year on your tax return typically should be the greater of the two as it is deducted from your AGI (Adjusted Gross Income) in arriving at taxable income. Taxable income is what your actual tax liability is based on and, in turn, affects the balance you will owe or the amount of your refund, whichever is applicable.

The standard deduction is a fixed amount based on your filing status. These amounts generally change each year. Taxpayers who are over 65 and/or legally blind have a higher standard deduction amount. Itemized deductions, in a nutshell, are those particular items that are reported on a Schedule A of your Federal tax return. Examples of itemized deductions include, but are not limited to, home mortgage interest, real estate taxes, medical expenses, cash and non-cash charitable contributions, tax preparation fees, and unreimbursed employee expenses. Of course, restrictions and limitations apply to each of the itemized deduction items.

Buying a home is the most common event that results in itemized deductions being higher than the standard deduction for many taxpayers. This is because the mortgage interest alone may

exceed the standard deduction for the taxpayer's filing status. If the mortgage interest by itself is lower than the applicable standard deduction, then the other applicable itemized deduction items need to be added to the mortgage interest to see if the total exceeds the standard deduction.

The standard deduction in some cases may actually be better for homeowners who have paid off or are close to paying off their home and who do not have high property taxes or many other itemized deductions. Every taxpayer's situation is different. Thus, if you think that a friend or neighbor has a similar situation to yours and itemizes, that does not mean that itemizing is the best option for you. Furthermore, some taxpayers take the standard deduction when itemizing would be better and vice versa.

The switch to itemizing deductions makes what may have been a simple return for a taxpayer to complete oneself much more challenging. Changes in marital status, adding dependents, and becoming self-employed are just a few other examples that can change a once straight forward tax return into a more complex one. Whenever there is such a change, consider consulting with a tax professional and having your tax returns professionally prepared. The money you will spend on consultation and preparation will most likely be very nominal compared to the tax dollars you will save. Additionally, you will have the peace of mind that the returns were prepared to maximize deductions and you can pass on the stress of trying to read through a mound of tax publications and instructions!

By Tiffany J. Morisue, CPA, 10/18/04

e-mail: tiffany@rrohio.com

Morisue & Associates, LLC

dba ABC Solutions

3964 Brown Park Drive. Suite A

Hilliard. Ohio 43026-1163

Source: www.prweb.com

Category: Taxes

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