Standard Deduction and Itemized Deductions

When Itemized Deduction is Better Than Standard Deduction ?

itemized deductionsThere are two ways an Individual can claim deductions under Internal Revenue Code while filing tax return- either by claiming standard deduction or the intemized deduction. If you can claim standard deduction or itemized deduction , itemized deduction option ( on schedule A of Form 1040 ) will logically be better if it gives you more deduction than the standard deduction .

Major itemized  deduction are :

Under itemized deductions, a tax payer can deduct

  1. his/her medical and dental expenses
  2. unreimbursed employee business expenses,
  3. certain payments of taxes,
  4. interest,
  5. contributions to charities ,
  6. miscellaneous expenses.
  7. certain casualty and theft losses

As you know the maximum itemized deduction is fixed and also based on your adjusted gross income , itemized deduction may  be reduced or phased out if the adjusted gross income is more than the following threshold ( For tax year  2016 )

  • Single – $259,400
  • Married filing jointly or qualifying widow(er) – $311,300
  • Married filing separately – $155,650
  • Head of household – $285,350

But there are cases, when the option for standard deductions are not available !Read More »When Itemized Deduction is Better Than Standard Deduction ?

Standard Deduction Under Internal Revenue Code Simplified?

irc standard deductionIt is a fact that most taxpayers cannot cope with many tax laws about various tax deductions available and further seldom maintains all kinds of documentation required for a claim of deduction while computing taxable income. So, in the year 1944, a simpler lump sum deduction -known as Standard Deduction– was conceptualized. So, this is allowed to all US taxpayers if he does not go for itemized deductions. In a way, the standard deduction is also good for tax administration as the authorities are not required to scrutinize all claims of documentation-big or small. The social touch was added to it vide Revenue Act 1944 and as on today, the IRC standard deduction, combined with personal tax exemption, are tools to help the low-income earning taxpayer from paying tax, thus improve his purchasing power.Read More »Standard Deduction Under Internal Revenue Code Simplified?