How To Decide Whether to Standardize or Itemize Your Tax Deductions?

Doing your taxes is time-consuming. There are a variety of choices on how to proceed. Taxes can be done online, or using a proprietary software package. Some taxpayers still use the old-fashioned method of pen and paper. Others prefer to hand the whole process over to a professional accountant. Whichever method you choose, you will still have to collect all those records related to income, mortgage payments and deductions so that you can comply with the law and claim all the credits due to you.

With so many different tax deductions that are available, it is no wonder that so many seem to over look several that could benefit them in their family. Every American is looking for ways in which he or she can hold on to their earned income and pay less in taxes. In fact the IRS stated that in 2005 over 843 billion dollars were claimed for personal exemptions on taxes.

Standard or Itemized Deductions?

Among the choices that might have the greatest effect on your tax return, in terms of the bottom line, is whether to opt for standard or itemized deductions as you file. For an unmarried filer, the standard deduction amount is $5,350, which is doubled for married taxpayers filing jointly. If your filing status is head of household, your deduction amount is $7,850.

According to the GAO, a Congressional investigative group, in 2002 only a third of the nation's taxpayers chose to itemize. This resulted in a loss of approximately $438 per taxpayer. In aggregate, not itemizing represented a $945 billion overpayment to the government.

Due to the amount of information that must be collected, opting to itemize your return is labor-intensive and time-consuming, even if you have a professional file for you. It is incumbent on the taxpayer to gather the documentation as evidence of their situation, and deliver it to the accountant or tax expert before the deadline. Few people take the time to hang onto every receipt during the course of a year and this tedious task is not high on most peoples' list of priorities.

Deciding whether to itemize is a relatively simple decision for homeowners to make. You sum the real estate taxes, interest on mortgage, state and local income taxes, then compare those sums with the standard deduction. People over 65 have an extra $1,300 single and $1,050 married-filing-jointly that can be taken in the standard deduction.

Even if you're not a homeowner, don't neglect the money-saving possibilities that itemizing might provide. Many expenses that can be itemized are not tied to home ownership. Renters donate to charities, travel on business, pay medical costs, run up miles on their cars, incur trustee or investment fees, and are expected to pay taxes. Itemizing will allow you to deduct your state's income tax, or to detail the sales taxes you paid if your state does not levy a tax on income. Sales tax in particular can be substantial if you make a large purchase, say an automobile or a great new television. All these costs should be evaluated as potential deductions on your taxes, and with proper record keeping, you will be positioned to take advantage of them.

Learn Secrets of business vehicle deductions and other hidden Tax Credits that can save you tons of money.

Ron Finkelstein is NOT a Tax Attorney or an accountant. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about Taxes and Time Management.