Standard vs. Itemized Deductions

13 Jan

Today I’d like to write about the difference between standard and itemized deductions since it seems to be a confusing subject for many people.

You can get a deduction from taxable income for certain personal expenses or you can claim a standard deduction.

For 2011, the standard deduction is $5,800 for single individuals, $11,600 for a married couple.

Itemized deductions are subtractions from your adjusted gross income (AGI) that reduce the amount of income that is taxed. Adjustments to your gross income (all income received in a given year) are made for alimony paid, contributions to many types of retirement or health savings plans, certain student loan interest, half of self employment tax, and a few other items.

If you choose to itemize your deductions, you can deduct the following expenses:

Medical and dental expenses – you can only deduct the amount that exceeds 7.5 percent of your AGI. Qualified medical and dental expenses are expenses that you paid for yourself, your spouse, and dependents.

State, local, and foreign taxes

Interest payments

Donations to charities – you are able to deduct all donations like: cash, clothes or furniture. Clothes and household goods must be in good condition to get the deduction. Make sure you keep the receipt!

Not all organizations qualify for deductible contributions. You cannot deduct donations given to:

  •     Chamber of Commerce
  •     Political organizations and candidates
  •     Social clubs
  •     Homeowners’ associations

Also, you can deduct 14 cents per each mile you drove your car for charity in 2011 .

Some miscellaneous expenses – include the payments you made to:

  •       Produce or collect income
  •       Manage, conserve, or maintain property held for producing income
  •       Determine, contest, pay, or claim a refund of any tax

For some miscellaneous deductions, only the portion that exceeds 2 percent of the taxpayer’s AGI can be deducted. Other miscellaneous deductions are deductible regardless of AGI.

You should itemize your deductions if itemizing results in a lower tax than taking the standard deduction.

 

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