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Choosing Standard or Itemized Deductions

Commonly Overlooked Deductions

Although itemizing is an easy concept to grasp in and of itself, the rules and strategies behind it can be complex. You have two choices when it comes to deductions on your tax return: itemize your deductions or take the standard deduction. There is a very simple way to determine if you should itemize your deductions--if the combined total of your itemized deductions is greater than the standard deduction for your filing status, then do it!

Itemized deductions are expenses you can use to lower your taxes. For 1999, the categories of itemized deductions are as follows:

  • Medical and dental expenses
  • Home mortgage and investment interest
  • State and local taxes
  • Charitable contributions
  • Casualty and theft losses
  • Job expenses
  • Miscellaneous deductions

Here are the standard deductions for 1999:

Single $4,300
Unmarried head of household $6,350
Married, filing separately $3,600
Married filing jointly or
Qualifying widow(er)

There are certain circumstances and situations under which taxpayers are force to itemize their deductions. This may be true for you if you meet any of the following criteria:

  • You are a nonresident alien or dual-status alien
  • You are married and filing separately and your spouse is taking itemized deductions
  • You are filing a return for a period of less than 12 months
  • You are a US citizen who can exclude income from US possessions

If you choose or are made to itemize your deductions, the key is to maximize the value of your expenses. Here is where all your good record-keeping and planning will come in to save you money on your taxes. Keep in mind however that certain itemized deductions, such as medical and miscellaneous deductions, must exceed a certain base amount before you are allowed to claim them on your tax return. For example, medical expenses are not allowed as itemized deductions unless they exceed 7.5% of your adjusted gross income. Even then, only the amount that exceeds the 7.5% is deductible. Say your adjusted gross income is $100,000 and you have incurred $10,000 in medical expenses. In order to qualify for the deduction, you must have at least $7,500 in medical bills (7.5% of $100,000 AGI.) Now that we have determined that you qualify for the deduction you must figure the actual amount you may deduct. Since only the amount over 7.5% is deductible, your actual medical deduction would be for $2,500 ($10,000 - $7,500.)

The same holds true for miscellaneous deductions. In this case, the base you must exceed to qualify for the deduction is 2%. Therefore, if your adjusted gross income is $100,000 and you have $5,000 in miscellaneous deductions, the first $2,000 in miscellaneous expenses do not count and your deduction would be for $3,000.