The IRS code provides for two ways one can take a deduction against your income to arrive at taxable income. One can choose to take a standard deduction, which is a predetermined amount based on your filing status. The standard deduction is good for a majority of simple tax returns. Some other more complex tax returns will benefit more from itemizing deductions, because the standard deduction will be too small.

Itemized deductions differ from the standard deduction in that itemized deductions require you to break out all of your expenses that are deductible; whereas the standard deduction lets you take a predetermined deduction based on filing status. Itemized deductions include many items. Health expenses, state and general sales tax, property interest and taxes, and work related expenses are all deductible on schedule A.

Health expenses are deductible on a schedule A. There is a 7.5% floor, which means if you have income of $100,000 you will need at least $7,500 of qualifying expenses in order to benefit. Some items that may be included in this section are premiums paid for health care, transportation expenses to see doctors, dentist expenses and many others.

State tax, general sales tax, real estate and property taxes are all allowed to be deducted on this form. Generally taxpayers have the choice of selecting state tax or general sales tax as a deduction. Most taxpayers will choose state tax unless; 1) They made a large purchase and the resulting tax is more than the tax they paid in state taxes for the year or 2) They live in a state which collects no state tax for wages. Real estate taxes are calculated as the tax you actually paid. Some people use an escrow account for the payment of taxes. You can’t claim taxes paid, even if you made an escrow payment, until the year the mortgage company actually paid the tax. Most states don’t have property taxes, but some do have this. One example is property tax to register a vehicle. Interest and deductible points you paid on a home are also able to be taken as a deduction.

Work related deductions are taken on form 2106. These are expenses related to carrying out your duties for your company. It can include business meals, entertainment of clients, and vehicle expenses. If your employer reimburses you for some or all of the expenses, you will need to include that amount in the calculation. Some of these expenses are limited and are based on your adjusted gross income. There is also a deduction for the fees you pay to have your tax return prepared.

Joseph Weber is an accountant who has extensive experience in tax matters. Please visit my website for more information on Itemized Deductions.

Author: Joseph Weber
Article Source: EzineArticles.com
Provided by: Guest blogger