Tax Returns And Itemizing

January 20, 2012 · Posted in Taxes 

Upon preparation of you taxes, decide if you want to itemize your deductions or take the standard deductions that are provided by the IRS.

Decisions, decisions…

Tax deductions are actually a very simple part of the tax reporting system. If you prepare your own taxes, then you know this isn’t true. Complicated tax forms can be a nightmare to fill out. The IRS enables you to take a standard deduction instead of having to itemize your deductions. So what do you think you should do?

The standard deduction is the easiest method because it requires no calculations or supporting documentation of any sort. You just determine your adjusted gross income and submit the amount for your classification. The amount would depend on whether you are a single, married, older than 65, or a person with kids.

Many people scoff at the mere idea of taking the standard deduction. This is actually a difficult decision to make. This is the best choice if you have a simple financial life and don’t have many deductions. It’s the best for you if you make $45,000 as an employee of a company, rent a house, and don’t have any major medical bills. But then, you can never be sure until you try itemizing your deductions.

Itemizing deductions involve just that. You must go through all your records and categorize the deductions. These deductions are then subtracted from your adjusted gross income to get a final figure from which tax is determined using the tax tables. It’s best to itemize if you have many tax deductions or tax credits. You could itemize it if you own a home. You would choose to itemize if you own a house, have significant medical bills, can claim tax credit, or have major losses. Obviously, there are other situations where itemizing makes sense, but this gives you an idea of the situation.

If you have a simple financial situation, claiming the standard deduction may be the answer. Itemizing will be better if your financial life is more complicated.

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