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When filing a tax return, taxpayers must choose either to itemize or apply the standard deduction. The standard deduction is a predefined deduction amount which is based on a taxpayer’s filing status. Itemizing your deductions, on the other hand, allows you to choose your deductions based on expenses you incurred during the tax year. Although changes are made to the tax code each year, the list of approved IRS deductions has remained relatively consistent. 
 

Purpose
Itemizing your deductions allows you to lower your taxable income by deducting allowable expenses. Items which can be deducted on your tax return include medical and dental expenses, taxes paid, home mortgage interest, charitable contributions, casualty and theft losses, and job or business related expenses.

How It Works
Taxpayers who choose to itemize their deductions should complete IRS Schedule A and enter the amount from Schedule A on line 40 of Form 1040. Then, attach Schedule A to your income tax return and submit it electronically or mail it to the IRS office which processes returns for your region. If you are not sure which office processes returns for your region, refer to the IRS website. In addition to Schedule A, some itemized deductions require that additional schedules be attached. For example, the Health Savings Account deduction requires that Form 8889 be included while the Tuition and Fees deduction requires that Form 8917 be attached to your 1040.

Limitations
Many deductions do not allow you to deduct the full amount of what you paid during the tax year. For example, you are only allowed to deduct the amount of your medical expenses which exceeds 7.5 percent of the amount listed on line 38 of your Form 1040 (adjusted gross income). In addition, charitable contributions are only tax deductible to the point to which the contributions are less than 50 percent of your adjusted gross income.

Considerations
Taxpayers who choose to itemize their deductions cannot file their return using IRS Form 1040EZ but must instead opt for Form 1040. The Internal Revenue Service also recommends that taxpayers complete a tax return using both their standard deductions and their itemization's in order to determine which method is most beneficial.

Warning
For more specific information regarding itemized deductions, contact your local CPA office and schedule an appointment to review your tax information.

Call Tabitha Walker at 540.657.5633 to start a plan on protecting your assets.

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Posted 1:51 PM  View Comments

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