Taxpayers have the option of taking the standard deduction on their federal income tax return, or itemizing deductions. The decision to itemize or not depends on which filing method will result in the lowest tax liability for the taxpayer. Itemized deductions allow you to decrease your taxable income for eligible expenses in medical care, taxes paid, mortgage interest, casualty losses and other miscellaneous deductions. Basically, if the amount you pay in eligible categories of expenses is higher than the standard deduction, you would benefit by itemizing deductions on your tax return.
It’s estimated that about one taxpayer out of every four who take the standard deduction would have a lower tax bill or a higher tax return if they itemized expenses rather than taking the standard deduction.
2011 Standard Deduction Numbers
In order to itemize deductions, you’ll need to have greater expenses than the following standard deductions based on the status of your tax filing (single, married, or head of household). The following are the 2011 standard deduction amounts in relation to tax filing status, as reported on TurboTax.com:
- Single – $5,800
- Head of Household – $8,500
- Married Filing Jointly – $11,600
There are some situations which get higher standard deductions. For example, if you are aged 65 or older or blind, you increase the standard deduction for your filing status by the following numbers
Single or Head of Household Filing Status
- age 65 or older or blind – $1,450
- both blind and older than 65 years of age – $2,900
Married, Widow or Widower Filing Status
- one spouse 65 or older or one spouse blind – $1,150
- one spouse who is both 65 or older and blind – $2,300
- one spouse 65 or older and both are blind – $3,450
- both over age 65 – $2,300
- both over 65 years old and one blind – $3,450
- both over 65 years old and both blind – $4,600
How to Determine if Itemizing Makes More Sense Than the Standard Deduction
You will need to calculate some numbers to see if your eligible expenses add up to a higher number than your standard deduction. If they are higher than the standard deduction, you should itemize deductions on IRS form 1040, Schedule A, to get the greatest tax benefits.
Homeowners: a quick way to see if itemizing is more beneficial than the standard deduction is to check if your mortgage or home equity loan itemized tax deductions are more than the standard deduction. You should receive a Mortgage Interest Statement (Form 1098) in the mail in January to show your deduction amount; and if you paid PMI, the premiums are also tax deductible if your adjusted gross income falls within a certain level. Don’t forget real estate taxes, as they are also deductible.
Taxes Paid: even if you’re not a homeowner, you should look at income taxes paid to city, state, and/or county. This includes income taxes paid and shown on your W-2 and any estimated taxes paid (including any amount of a 2010 refund you previously applied to your 2011 tax bill). If these amounts are greater than your standard deduction, you will benefit from itemizing over taking the standard deduction.
Charitable Donations: if you make charitable donations to qualified nonprofit organizations, including the Red Cross, churches and other organizations, you can deduct the amount if you itemize your deductions. If you donate items rather than money, you have to estimate the value of the donation – but don’t overvalue anything to get a higher deduction. You’ll need to support your charitable deduction with a receipt.
Medical Expenses: Medical expenses in excess of 7.5% of your annual adjusted gross income are deductible. Deductible expenses include doctors, dentists, chiropractors, lab fees, prescription drugs, medical supplies, eyeglasses and contact lenses. If you pay your own health insurance premiums, you can deduct the amount you pay.
Miscellaneous Deductions: if the total of your miscellaneous deductions add up to greater than 2% of your adjusted gross income, you can deduct them if you itemize your taxes. Examples of miscellaneous deductions would include union dues, magazine subscriptions related to work, protective work clothing or boots or uniforms required for your job, tools and supplies for your work, business liability insurance premiums, job search expenses, tuition for classes to improve skills in your present job, safe deposit box fees, tax preparation fees and legal fees paid to protect taxable income.