Money Matters - Taxing Times: Should You Itemize?
BOSTON (CBS) - Close to 48 million taxpayers take the time to fill out all those formidable long 1040s and use their deductions, over $1 trillion in deductions. That's 12 zeros.
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The majority, the other 92 million, don't have the income or the deductions to itemize, but many won't take the time to figure out if using their deductions is the better deal.
A study by the government found that $1 billion annually is lost by taxpayers who don't take the time to itemize. These are people who were entitled to larger refunds based on their deductions, deductions they did not utilize when they filed their returns.
The standard deduction for 2010 for a single taxpayer is $5,700, married couples it's twice that, $11,400 and head of household its $8,350.
If you're over 65 and single, you can add an extra $1,400 to the standard deduction, or $1,100 each for you and your spouse if you're married filing jointly.
You can use either the standard deduction or your deductible expenses whichever is larger. But you need to take the time to figure it out.
To do a quick assessment, is your total income under $100,000, how much did you pay in state income tax. Did you make any charitable contributions through payroll deduction? Then add up your mortgage interest payments and real estate taxes, which you will find on form 1098 that you received from the mortgage company. If they did not pay your taxes for you get out your check book ledger.
Do you have a new car? How much did you pay for excise tax? Did you have large medical or dental bills? Do you pay for your own health insurance? Contributions? Now do a quick calculation, add them all up to see if the items you can deduct are larger than the standard deduction amount.
Using check writing software such as Quicken is a plus when you want to retrieve these numbers. You can easily print out a report with all of your deductible expenses making the decision process so much easier.
If your deductions are larger than the standard deduction number then make the effort to use those deductions and file the long 1040. I am a firm believer in paying taxes but only what you really owe. But if you are not going to do your taxes yourself add in the preparer fee to be sure you still come out ahead.
There are some deductions that are allowed by the IRS whether you itemize or not. Some IRA contributions, student loan interest, tuition deduction, and Educator expenses. Also most of the tax credits can also be used.
