Millions of taxpayers are allowed to choose between itemizing their deductions or take standard deductions every tax year. The choice between the two options depends on a taxpayer’s personal preferences and requirements. To select the most appropriate method that can guarantee the lowest tax amounts, you need to consider the following key factors.
1. Qualified Expenses: The amount a taxpayer spends on some specific expenses is very important in determining whether to itemize deductions on the tax returns or not. You stand a high chance of finding itemizing beneficial if the cumulative amount spent on eligible medical care, contributions to charities, taxes, interests from mortgages, losses due to casualties as well as miscellaneous deductions, exceed your standard deductions.
2. Standard Deduction Amounts: Standard deductions are usually set based on a taxpayer’s filing status, and vary from year to year based on the inflation levels. The amounts set by the IRS for 2011 was; $5,800 for singles, married filing jointly was $11,600, head of Household $8,500, married filing separately $5,800, qualifying widow(er) $11,600.
3. Differences in Standard Deductions: Not all taxpayers have similar standard deductions as the amount varies with the filing status based on age say 65 years or older, physical disabilities like blindness, or if there is another taxpayer who can claim an exemption on your behalf. The Standard Deduction Worksheet which can be found on the back of Form 1040EZ, or in the instructions contained on 1040A or 1040 should be used if any of the above factors apply.
4. Limited Itemized Deductions: The practice in the past where taxpayers with adjusted gross income had limited itemized deductions was scraped.
5. Taxpayers Ineligible for Standard Deduction Not all taxpayers qualify for standard deduction. If you are a nonresident alien, have filed your tax returns for under 12 months because of alterations in the accounting times or you are a dual-status alien, you are not eligible.
6. Required Forms: The IRS Form 1040EZ contains the Standard Deduction Worksheets. There are instructions contained as well in IRS Forms 1040A or 1040. Use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions to itemize deductions
You can get these forms plus the instructions from the IRS website, available for download. You can also place an order for them by calling 800-TAX-FORM (800-829-3676)