Wading through piecemeal deductions at tax time is no easy task.
On one hand, knowing what you can write off and what form to fill out sometimes requires a lot of research and foresight. On the other, intelligent taxpayers who have the proper documentation can unlock big-time deductions.
But before you start digging through the tax code, there’s an important question to ask: Should you even bother?
Most taxpayers have a very hard time claiming beyond the “standard deduction.” This is the minimum amount that the IRS allows everyone to reduce their taxable income by each year. According to the IRS, roughly two-thirds of all taxpayers take the standard deduction rather than itemizing.
For tax year 2012, the standard deductions are:
— $11,900 for married couples filing jointly.
— $5,950 for individuals or couples filing separately.
— $8,700 for heads of a household.
Without a major tax deduction such as mortgage interest or big medical bills, it’s hard to break those thresholds. A handful of prescriptions and a few hundred bucks in charitable giving don’t get you close.
In short, if you can’t tally up more than these amounts in deductions, don’t bother to itemize.
There are a few common circumstances that can put taxpayers over the top. These
— Health issues. Big-time medical bills that you have to pay out-of-pocket count. If you had serious health issues or didn’t have insurance in 2012, you could easily top the standard deduction. Check the list of qualified expenses at IRS.gov for more information.
— Children. That little bundle of joy doesn’t come cheap. But thankfully, those antibiotics for ear infections are deductible under the medical breaks. Child care is deductible, too, as is part of the college tuition you’ll dole out later. Beyond deductions, there are also credits you may be qualified for based on circumstance, so if you have kids, it’s worth digging into the tax code to see what you can claim.
— Homeownership. The mortgage interest deduction may put you over the top by itself, especially if you recently purchased a house and most of your payments are short on principal and long on interest. You can also deduct local and state property taxes on federal returns, and some qualified items are covered under
residential energy efficiency breaks.
If you’re in the ballpark of the standard deduction because of circumstances such as these, it might be worth gathering your receipts and talking to a tax professional. Tax preparation is tax deductible, so if you know you can itemize, you can tap the knowledge of a certified public accountant, then add that to your deductions on your return next year.
One final note: There are a few circumstances where you cannot use the standard deduction, even if you’re under the IRS threshold. They include:
— Filing separately from your spouse when your spouse itemizes deductions.
— Filing a tax return for a period of less than 12 months because of a change in accounting methods.
— You are a non-resident alien or a dual-status alien during the tax year.
For more information on the difference between itemized deductions and the standard deduction, refer to the Form 1040 Instructions, or Publication 17 on IRS.gov, which explains “Your Federal Income Tax.”