Many factors go into determining the proper deductions and amounts on federal and state tax returns. The total deductions taken will generally fall into either the standard or itemized deduction categories, and taxpayers should carefully research their options and individual circumstances to elect the best choice to properly minimize their tax obligations.
The standard tax deduction may seem the easier option, especially for those taxpayers with less-than-exemplary record-keeping skills. But for those with many potential deductions, taking sufficient time to determine the best choice will be well worth it. The first step is to discern the applicable standard deduction, which, as of February 2011, is $5,700 for single taxpayers and $11,400 for married couples on a joint return. Heads of households may deduct $8,400 if they are unmarried yet paid more than half of annual home expenses and had a qualifying person living there, or for a dependent parent outside the home. Higher deductions exist for those 65 and older or blind ($1,400 more or $2,800 for those both blind and over 65), with a spouse meeting these conditions ($1,100 or $2,200) and additional amounts for various other combinations.
Major Itemized Deductions
The primary categories of deductions that affect most taxpayers are those for mortgage interest, charitable donations, medical expenses and state/local taxes, which are included on Schedule A of Form 1040 and come with a range of stipulations and amounts. Those with such deductions should compare the total amount against that for the standard deduction and choose the higher option. Individual states have their own limitations, which should be concurrently explored.
Many taxpayers are eligible to deduct amounts for which they may not be aware they qualify. The amounts must either be related to their jobs and not otherwise reimbursed by employers or involve expenses related to tax preparation and audits. These include union or professional dues, publication subscriptions, protective clothing, specialized gear or equipment, uniforms, required medical checkups, tuition for job-related courses, job-seeking expenses, cellphone and computer depreciation, tax-preparation fees and certain legal costs.
Tax Form Details
Under Tax and Credits, lines 38 to 55 on Form 1040, the IRS specifies additional categories of deductions that comprise the rest of eligible expenses for the total deduction figure. These include exemptions, the alternative minimum tax, foreign tax credit, child- and dependent-care expenses, credits for education and retirement savings, residential energy and others on Forms 3800 or 8801.