Guest Author - Kate Woods
When you prepare your personal federal tax return, or have it prepared, you choose to reduce your gross income by the amount of your allowable standard deduction or allowable itemized deductions. You cannot do both. So how do you know which one is better or which one you qualify to take?
The standard deduction is made up of two parts, the basic standard deduction and an additional standard deduction based on age, blindness or both. The amount is a specific dollar amount, adjusted for inflation annually, based on your filing status. The additional amount allowed for age is allowed if you are 65 or older at the end of the tax year. According to the IRS, you are considered to be 65 on the day before your 65th birthday). The additional amount based on blindness is allowed if you are blind on the last day of the tax year.
The standard deduction of a person who can be claimed as a dependent on someone else's return is a basic specific annual amount or an amount equal to the person’s earned income plus a specified annual amount. This total cannot be more than the basic specific annual standard deduction amount stated for their filing status.
Standard deductions for 2008 returns filed in 2009 are as follows:
Married couples filing jointly (MFJ) - $10,900
Singles and Married filing separately (S) (MFS)- $5,450
Heads of Household (HofH)- $8,000
Dependents that can be claimed by another - $900 (or $300 plus earned income)
Extra for Age or Blindness – Single $1,350, Married $1,050
An additional extra amount of $500 ($1,000 for MFJ) can be added to your standard deduction for state and local Real Estate Taxes and an additional extra amount can also added for certain net disaster losses.
There are some taxpayers who cannot use the standard deduction. Per IRS Publication 501 they are:
1. A married individual filing a separate return whose spouse itemizes deductions.
2. An individual who was a nonresident alien or dual status alien during any part of the year (note that residents of India may be able to claim the standard deduction if they meet certain criteria (refer to Publication 519).
3. An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period.
4. An estate or trust, common trust fund, or partnership.
Now, obviously if you are not eligible to take the standard deduction, your alternative is to itemize deductions on Schedule A of your Form 1040; but you may also wish to itemize if your total deductions are more than the standard deduction amount. If you think that may be the case you should first compile the information and complete a Schedule A and then compare the standard deduction and the itemized deductions to determine which is more beneficial for you. When doing your analysis, make sure that you also consider that your itemized deductions may be limited based on your adjusted gross income. Per IRS data you may be subject to a limit on some of your itemized deductions if your 2008 adjusted gross income (AGI) is more than $159,950 ($79,975 if you are married filing separately). Refer to the instructions for Schedule A (Form 1040), line 29, for more information on figuring the correct amount of your itemized deductions.
Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.
Content of this site is not intended to replace professional consultation.