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Should I Itemize My Taxes This Year?
Completing your tax return can be a lot of work and there are a variety of methods you can use to do this. You have the option of doing them online, or you can purchase a program. You can pay and accountant to complete the return for you, or you can gather all the necessary documents and do them yourself the old fashioned pencil and paper way. Whatever method you chose, it is important that you have all the paper work you need so you can get all the credits or deductions you are qualified for and thus save money.
With so many different tax deductions that are available, it is no wonder that so many seem to over look several that could benefit them in their family. Every American is looking for ways in which he or she can hold on to their earned income and pay less in taxes. In fact the IRS stated that in 2005 over 843 billion dollars were claimed for personal exemptions on taxes.
One of the most significant decisions for your tax return, monetarily, is whether you accept standard deductions vs. itemized deductions when filing your tax return. The standard deduction for a single taxpayer can be $5,350, while a married taxpayer filing jointly can get double the amount. For a head of household who is single, the deduction comes to $7,850.
According to the GAO, a Congressional investigative group, in 2002 only a third of the nation’s taxpayers chose to itemize. This resulted in a loss of approximately $438 per taxpayer. In aggregate, not itemizing represented a $945 billion overpayment to the government.
The fact that most of us don’t keep detailed records about our financial life through out the year can leave us with a rather intimidating job to do at tax time. To itemize your deductions on your taxes, you must collect information about your real estate taxes paid, your charitable giving, medical expenses, dental expenses, business travel expenses, educational expenses and many other pieces of information that may seem trivial over the course of a long year. But suddenly, at tax time, this information becomes all too important. Even if you hire someone to file your taxes, most of this work still rests firmly on your shoulders. While your accountant is responsible for organizing the data you provide to them, you are still responsible for collecting all the data they need. Many Americans choose to curtail our workload by simply choosing to take the standard deduction on our taxes.
Most homeowners make the decision to itemize their deductions. It is no wonder with all that we are allowed to deduct from our taxes. For example, every homeowner is allowed to deduct state and local income taxes, real estate taxes that were paid, and even the interest on their mortgage. Homeowners are allowed to deduct the cumulative of these from the standard deduction. In addition anyone who is over the age of 65 years old gets an additional $1,300 in deductions. This amount is changed to $1,050 for someone whom is married and filing jointly.
Just because you don’t own a house is not a good reason to not, at least, look at the idea of itemizing to save money. Renters can still claim advice fees for investment, medical bills and the mileage and cost of a place to stay if they had to travel, trustee fees, donations to charity, you state taxes, expenses incurred from investment and even sales tax (this is especially helpful if you made large purchases like a car or appliances). These items are all considered deductions that can be itemized on your tax return. Collecting all this information might pay for itself in a return on your yearly tax return. If you decide to itemize and you don’t pay income tax in your state you can use your sales tax in place of state income tax.