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Get the most out of your 2010 tax return: Begin with the basics!

February 10, 2010

Tax time seems to be one of the most nerve-wrenching times of the year for most individuals. As a tax preparer this season, I want to provide the best service for my clients to ease their worries! To that extent, there is some education that goes on for the client during the tax preparation. Tax preparers should be mindful to explain the process to their clients.

Many of the concepts are quite easy to grasp once you have done a few. However, one of the most common scenes I continually see is individuals who bring in a huge stack of paper, hoping that I will be able to utilize it to help them obtain a huge deduction. Majority of the time, I can’t use half of the paperwork because it does not qualify as an itemized deduction. Sorry, but gas receipts do not count for the home-work commute! Neither does electricity bills or purchases of appliances. I wish it did! Now, work facility to work facility commuting is a different story as you will see below.

Others times, a client might come in with only interest paid on home mortgage (i.e $1,000) and request to itemize. As a rule of thumb, it is more advantageous to itemize if the total exceeds your standard deduction. Well, what does that mean? You ask. First let’s take a brief look at your filing status. There are five: Single, Head of Household, Married filing jointly, and Married filing separately, and Qualifying widow(er). This year the standard deduction amounts are as follows:

  • Single: $5,700
  • Head of Household: $8,400
  • Married Filing Joint: $11,400
  • Married Filing Separately: $5,700
  • Qualifying Widow/Widower: $11,400

You are able to itemize if expenses fall in to the following categories:

  • Charitable contributions to a 501 3(c) organization (i.e. church tithes, United Way)
  • Medical and Dental Expenses paid out of pocket after insurance
  • Home Mortgage and Insurance Premium Interest
  • Paid Alimony
  • Business Use of Home
  • Business Use of Car that is not reimbursed by the company you work for.
  • Business Travel Expenses that is not reimbursed by the company you work for.
  • Business Entertainment Expenses that is not reimbursed by the company your work for.
  • Educational Expenses (i.e. tuition payments, interest paid on student loans)
  • Employee Business Expenses(i.e. uniforms, footwear, office supplies, unreimbursed)
  • Casualty, Disaster and Theft Losses

If your itemized information sums up to more than the standardized deduction in your filing class listed above, then it is best for you to itemize. If not, stick with the standard.

For example, my filing status is single, I drive my car between business facilities. My gas and mileage were not reimbursed by my company. It totaled $2,000. I paid $10,000 in mortgage interest. I WILL itemize because my itemization categories sum to $12,000 and my filing status is single ($5,700 std).

Here’s another example. Our filing status is Married Filing Jointly, our mortgage interest was 10,000. I WILL NOT itemize because it falls below the standard amount of 11,400.

Choosing the appropriate amount will lower your Adjusted Gross Income; thus lower the amount of taxes that you must pay! This could potentially give you a refund if you overpaid, which is always exciting.  I hope this helps you to understand the differences as well as the advantages of choosing itemized vs standard deductions! If you have any questions, feel free to ask me! I won’t charge you for a question!

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