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Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. According to the IRS, money paid for medical care, mortgage interest, taxes, contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.
For tax year 2004 and 2005 itemized returns, you have a choice of claiming a state and local tax deduction for either sales or income taxes. The IRS will provide optional tables for use in determining the deduction amount, relieving taxpayers of the need to save receipts throughout the year. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Check a box on Schedule A, Itemized Deductions, to indicate whether your deduction is for sales or income taxes.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2004, they are:
- Single - $4,850
- Married Filing Jointly - $9,700
- Head of Household - $7,150
- Married Filing Separately - $4,850
The standard deduction amount is more for taxpayers age 65 or older and for those who are blind. It is generally less for those who can be claimed as a dependent on some other taxpayer's return.
Your itemized deductions may be limited if your adjusted gross income is more than $142,700, or $71,350 for Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.
When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.
There are some taxpayers who are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months. For additional information, see Publication 501,
Exemptions, Standard Deduction, and Filing Information.
Use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions, to itemize your deductions.
For more details on itemized deductions, see the instructions for Schedule A or Publication 17, Your Federal Income Tax. Download the publications and forms or order them by calling toll free 1-800-TAX-FORM (1-800-829-3676).
Links:
Source: http://www.irs.gov/newsroom/article/0,,id=105101,00.html
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