What Are Itemized Deductions ?
Hi everybody !!
I thought I'd write a few posts on the lovely subject of taxes, so y'all can better understand them and hopefully pay less tax (legally) !
The subject of this post: What are "Itemized Deductions" ?
First we need to define "Adjusted Gross Income (AGI)". A simple definition would be: The sum total of your various incomes (wages from employment, net income [profit] from your own businesses, interest and dividend income you received, unemployment compensation, etc.), MINUS certain deductions (such as certain educator, tuition and moving expenses, alimony you paid, your IRA contribution, etc.). So they take your total income and subtract a few things (if you have them). Now you have your AGI.
The IRS then automatically "gives" you a "standard deduction" – a certain dollar amount they are kindly allowing you to subtract from your income to cover some of your expected cost of living expenses. For 2009, the standard deduction for a single person (or married filing separately) is $5,700; married filing jointly $11,400, etc. (there are some other categories, as well). See this IRS article. This "standard deduction" is deducted from your AGI. This lowers the amount of income that you would then be taxed on." In other words, the deduction is not subtracted from the taxes you owe, but rather, it is subtracted from your AGI before any tax is calculated.
Okay. So you automatically get that "standard deduction". However, if your actual qualifying personal deductions exceed the amount of your standard deduction, then you can (and usually should) claim your actual deductions instead ! These are called itemized deductions (because you are going to itemize them – list them out – on a form which is attached to your tax return). The form is called "Schedule A". A "schedule" is "a list of things" or "a list of details attached to a legal document".
Each of these itemized deductions has its own various bizarre rules about how much of it you can deduct (if you can deduct it at all). I won't go into those rules here – there are lots of them.
Some of the more common "itemized deductions" include:
Medical Expenses
Taxes Paid (such as Property Tax, Sales Tax -or- State Income Tax paid, DMV registration tax, etc.)
Mortgage Interest
Charitable Contributions
Unreimbursed job expenses (when you are an employee somewhere)
Safe Deposit Rental Fees
Money you paid to have last year's taxes prepared
There are more deductions than just the above, and again, there are plenty of rules regarding itemized deductions – not all the things that you might consider "medical" are deductible, for example. If you don't know all about itemized deductions, you could be missing out, or you might be claiming something you can't claim (leaving yourself open to a future audit).
There is one more thing subtracted from AGI before you arrive at "taxable income" – Personal Exemptions." In 2009, you get to deduct $3,650 for each person listed on your tax return, such as yourself, your spouse, and your dependent children, for example (this is a simplified but sufficient definition). See this IRS article. So if it's just you, you get "1 exemption" and deduct $3,650 from your AGI. If it's you, your spouse and 2 children, you get "4 exemptions" and deduct $14,600 from your AGI.
And now you have arrived at your Taxable Income, on which your tax is calculated ! Of course, it doesn't end there – your tax return isn't done yet ! The U.S. Tax Code now exceeds 60,000 PAGES (which contain plenty of conflicting data). You can visit www.fairtax.org to help fix the system !!!
But there is the basic data !
Cheers,
JoJo Zawawi
Registered Tax Preparer
QuickBooks Certified Pro Advisor
Tel. 818-243-7721
www.theZcorp.com
I thought I'd write a few posts on the lovely subject of taxes, so y'all can better understand them and hopefully pay less tax (legally) !
The subject of this post: What are "Itemized Deductions" ?
First we need to define "Adjusted Gross Income (AGI)". A simple definition would be: The sum total of your various incomes (wages from employment, net income [profit] from your own businesses, interest and dividend income you received, unemployment compensation, etc.), MINUS certain deductions (such as certain educator, tuition and moving expenses, alimony you paid, your IRA contribution, etc.). So they take your total income and subtract a few things (if you have them). Now you have your AGI.
The IRS then automatically "gives" you a "standard deduction" – a certain dollar amount they are kindly allowing you to subtract from your income to cover some of your expected cost of living expenses. For 2009, the standard deduction for a single person (or married filing separately) is $5,700; married filing jointly $11,400, etc. (there are some other categories, as well). See this IRS article. This "standard deduction" is deducted from your AGI. This lowers the amount of income that you would then be taxed on." In other words, the deduction is not subtracted from the taxes you owe, but rather, it is subtracted from your AGI before any tax is calculated.
Okay. So you automatically get that "standard deduction". However, if your actual qualifying personal deductions exceed the amount of your standard deduction, then you can (and usually should) claim your actual deductions instead ! These are called itemized deductions (because you are going to itemize them – list them out – on a form which is attached to your tax return). The form is called "Schedule A". A "schedule" is "a list of things" or "a list of details attached to a legal document".
Each of these itemized deductions has its own various bizarre rules about how much of it you can deduct (if you can deduct it at all). I won't go into those rules here – there are lots of them.
Some of the more common "itemized deductions" include:
Medical Expenses
Taxes Paid (such as Property Tax, Sales Tax -or- State Income Tax paid, DMV registration tax, etc.)
Mortgage Interest
Charitable Contributions
Unreimbursed job expenses (when you are an employee somewhere)
Safe Deposit Rental Fees
Money you paid to have last year's taxes prepared
There are more deductions than just the above, and again, there are plenty of rules regarding itemized deductions – not all the things that you might consider "medical" are deductible, for example. If you don't know all about itemized deductions, you could be missing out, or you might be claiming something you can't claim (leaving yourself open to a future audit).
There is one more thing subtracted from AGI before you arrive at "taxable income" – Personal Exemptions." In 2009, you get to deduct $3,650 for each person listed on your tax return, such as yourself, your spouse, and your dependent children, for example (this is a simplified but sufficient definition). See this IRS article. So if it's just you, you get "1 exemption" and deduct $3,650 from your AGI. If it's you, your spouse and 2 children, you get "4 exemptions" and deduct $14,600 from your AGI.
And now you have arrived at your Taxable Income, on which your tax is calculated ! Of course, it doesn't end there – your tax return isn't done yet ! The U.S. Tax Code now exceeds 60,000 PAGES (which contain plenty of conflicting data). You can visit www.fairtax.org to help fix the system !!!
But there is the basic data !
Cheers,
JoJo Zawawi
Registered Tax Preparer
QuickBooks Certified Pro Advisor
Tel. 818-243-7721
www.theZcorp.com
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home