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FAQ: Should I take the Standardize Deduction?

FAQ: Should I take the standard deduction or itemize this year?

It is a common decision you may make every tax season: whether to take the standard deduction or itemize deductions. Most taxpayers have the choice of itemizing deductions or taking the applicable standard deduction amount, the choice resting on which figure will result in a higher deduction. Once you have determined the standard deduction amount that applies to you, the next step is calculating the amount of your allowable itemized deductions; not always a simple task.

Standard deduction basics

Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, according to the IRS. Moreover, favorable changes to the tax laws made in 2008 may make the standard deduction even more attractive to non-itemizers. Not all taxpayers can take the standard deduction, however. For example, a married taxpayer filing a separate return whose spouse elects to itemize his or her deductions can not take the standard deduction that year. And those who are dependents of another cannot take the full standard deduction.

The standard deduction amounts have increased for 2009 as a result of inflation adjustments. Additionally, marriage penalty relief continues to allow joint filers to take double the deduction amount as single filers. However, this benefit for married couples sunsets for tax years after December 31, 2010, unless Congress acts to extend marriage penalty relief.

The standard deduction amounts for the 2009 tax year are:

  • $11,400 for married couples filing a joint return (and surviving spouses);
  • $5,700 for singles and married individuals filing separately; and
  • $8,350 for heads of household.

Standard property tax deduction for non-itemizers. Non-itemizers can also increase their standard deduction for 2009 by the lesser of (1) the amount otherwise allowable to the individual as a deduction for state and local property taxes, or (2) $500 ($1,000 in the case of married individuals filing jointly).

Additional deduction for age and blindness. Taxpayers who are age 65 or older or who are blind receive an additional standard deduction amount that is added to the basic standard deduction (above). The additional amounts for 2009 are $1,400 for single filers and head of household, and $1,100 each, for married individuals (filing jointly or separately) and surviving spouses. Two additional standard deduction amounts can be taken by a taxpayer who is both over 65 and blind.

Itemizing deductions

  • A significant consideration when deciding whether to itemize your deductions is that total itemized deductions will be reduced if your adjusted gross income (AGI) is too high. For 2009, the itemized deductions of higher-income taxpayers are reduced by the lesser of:
  • 3 percent of a taxpayer's AGI over $166,800 ($83,400 for married taxpayers filing separately); or
  • 80 percent of the amount of the itemized deductions subject to the reduction, which are otherwise allowable for the tax year.

Note. There is no required reduction for deductions of medical expenses, investment interest, and casualty, theft or wagering losses. You may want to take steps to decrease your AGI this year, such as by deferring income or accelerating the deductions to a low AGI year.

Some itemized deductions may only be claimed if they exceed a certain percentage of your AGI (2% for miscellaneous itemized deductions, 7.5% for medical expenses, and 10% for casualty losses). Any increase in your AGI will reduce AGI-based itemized deductions leaving you with fewer deductions to offset your total income.

Common itemized deductions you may want to consider are:

  • Medical expenses;
  • Charitable contributions;
  • Sales taxes (in lieu of state and local income taxes);
  • State and local income taxes;
  • State and local property taxes;
  • Mortgage interest on a principal and secondary residence;
  • Investment interest;
  • Personal casualty losses;
  • Gambling losses of a nonprofessional gambler not in excess of winnings; and
  • "Miscellaneous" deductions.

Commonly claimed miscellaneous expenses (subject to the 2% AGI limit) include:

  • Expenses connected with managing your investment or income producing property
  • Tax advice and preparation fees
  • Appraisal fees connected to charitable contributions or casualty losses
  • Job hunting and moving expenses
  • Professional journal subscriptions
  • Home office expenses
  • Union or professional dues, and
  • Employee's unreimbursed expenses.

Planning tip. Those who are close to the cut off amount for being better off itemizing than taking the standard deduction might want to consider using a year-end planning technique that incorporates alternating between the standard deduction and itemizing deductions each year. The strategy is to accelerate or defer expenses that can boost itemized deductions all into a one year, then take the standard deduction for the other tax year.

Caution. To complicate matters, some deductions either are not permitted or are allowed only in a lower amount if you are subject to alternative minimum tax (AMT).

If you have questions about preparing your return, give our office a call. We can discuss your tax situation and help you navigate the complex maze of tax laws.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.