Itemized Deductions

It's a question as old as income taxes themselves: Should I itemize my deductions or take the standard deduction? Itemized deductions often lower the taxes you owe and end up giving you a better tax refund than the standard deduction. This makes the decision easy. Sometimes you don't even have a choice. The tax code requires you to itemize.

In either case, you need to know exactly how to itemize your deductions. This requires knowing what items can be deducted and how much you can deduct. Knowing these things will enable you to compare your standard and itemized deductions so that you can make an informed decision. In addition, if you're required to itemize, it helps you complete your tax forms correctly and avoid an audit by the Internal Revenue Service (IRS).

Standard Deduction

The standard deduction is a preset amount that you use to lower your taxable income. The amount of the deduction is based upon your filing status. For 2010, the amounts are:

  • $5,700 if you're single
  • $11,400 if you're married and you file jointly with your spouse
  • $8,400 if you're the head of your household

You're entitled to a higher standard deduction if:

  • You're 65 or older at the end of the year
  • You're totally or partly blind on the last day of the year
  • Your spouse is at least 65 or blind, and you file a joint return
  • You paid any state or local sales or excise taxes in 2010 on the purchase of a new motor vehicle after February 16, 2009, and before 2010
  • You had a net disaster loss in 2010 because of a federally declared disaster that occurred before 2010

Use IRS Publication 501 to help you figure your standard deduction.

Itemized Deductions

When you itemize your deductions, you add up various costs and expenses that are specifically allowed by the tax code. If you add them up, and the amount is more than your standard deduction, you'll generally want to itemize.

Some taxpayers don't have a choice and are required to itemize. You're required to itemize when:

  • Your spouse itemizes deductions
  • You're filing a tax return for a "short" tax year because you changed your annual accounting method, or
  • You're a nonresident or dual-status alien during the year

What's Deductible?

There are a number of itemized deductions you may be able to take. These deductions and their amounts can change from year to year. Some of the more common itemized deductions include:

  • Mortgage interest on your home
  • Real estate taxes
  • State or local income taxes
  • Cash donations you've made to charitable organizations
  • Noncash items you've donated, such as clothes, books and furniture
  • Medical and dental expenses
  • Casualty and theft losses, such as the decrease in value of your home as a result of damages caused by a hurricane or fire
  • Gambling losses
  • Union dues or fees you pay to professional organizations
  • Safety clothing you buy for work, like hard hats, steel-toed boots and protective eye wear
  • Special tools you buy for work
  • Tax preparation fees
  • Subscription fees for work-related magazines

What Can't You Deduct?

There are a variety of expenses that can't be deducted on your tax return. Some examples of these expenses include:

  • Lost cash or property
  • Political contributions
  • Club or lodge dues
  • Cost of entertaining friends
  • Gifts to sports clubs or labor unions
  • Cost to attend a seminar that's not related to your employment

Make Sure to Get It Right

There are other kinds of itemized deductions that you may be able to claim. You need to read the Schedule A instructions carefully so that you're certain to take all the deductions you're entitled to. However, you must make sure to claim them properly and reduce the amount of your deductions if necessary. If you're still uncertain about whether something is deductible, can help you locate a tax lawyer in your area for specific legal advice.

Questions for Your Attorney

  • I took the standard deduction in 2009, but I think I should have itemized. Can I file an amended return? Is it worth the time and effort?
  • My wife and I recently separated. If she itemizes her deductions on her tax return, do I have to itemize?
  • My tax software suggested that I take the standard deduction, even though my itemized deductions are higher, to give me a better state tax refund. Does that sound right to you?
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