Taking Standard Tax Deductions Could Cost You


By Eileen A.J. Connelly, AP Personal Finance Writer

NEW YORK (AP) — To itemize or not to itemize?

Debating the answer to that question can stall the best intentions to get a tax return filed before the April 15.

Taxpayers have two choices: take the standard deduction or itemize deductions such as mortgage interest, charitable donations and job-related spending.

Internal Revenue Service statistics show that only about 35 percent of tax returns include itemized deductions. That means it's likely many are missing out on tax savings they'd get if they claimed all they are entitled to.

The standard deduction for most taxpayers starts at $5,700 for a single person, or $11,400 for a married couple filing a joint return. A taxpayer who can claim head of household status gets $8,350 to start.

The total amount of the standard deduction you can claim can rise depending on several factors. Taxpayers who are over 65 and/or blind get an increase. You'll also get a bump up of $500 ($1,000 for married couples with joint returns) for paying real estate taxes.

And if you filed losses within any of the 59 disaster areas designated by the federal government in 2009, you'll be able to add the amount of your net loss.

This year, there's also a credit added for any sales tax paid if you bought a new car after Feb. 16, 2009.

There's a calculator to help you determine your standard deduction on the IRS Web site.

Once you have that number, you can figure out if it's better to itemize by comparing it to the total of other deductions you may claim.

Vincent Cervone, a certified public accountant in Brooklyn, N.Y., said most homeowners should benefit from itemizing, along with anyone who can claim high medical costs, investment expenses, or a host of other deductions. "Especially if you're a new homebuyer, your mortgage interest can be more than $20,000," he said.

Even though the standard deduction has increased, he said, "I don't think it's every going to catch up to itemizing."

One key is to make sure you have paperwork like receipts or bills to back up your claims. If you have a mortgage, for instance, a Form 1098 listing how much interest you paid in 2009 likely arrived with your January statement, or can often be downloaded from your account online.

Medical expenses can be claimed if they add up to more than 7.5 percent of adjusted gross income. That's a steep standard, but if a family member had a chronic or major illness last year, it's worth checking to see if the total reached that threshold.

Likewise, job-related expenses that were not reimbursed by an employer, along with dues for membership in professional organizations, union dues and travel and transportation expenses related to work can be claimed, subject to certain limits.

Charitable donations, including money given through Feb. 28 for earthquake relief in Haiti, may also be itemized. But the IRS requires that every donation be documented, even those made with cash. That means bills dropped in a collection plate can't be claimed, even if you make a habit of such offerings. It's best to donate with a check or credit card so accurate records are available.

Married couples filing separate returns must make the same choice. It's prohibited for one half of a couple to file and claim a standard deduction and the other to itemize.

If you're using software like TurboTax, the program will ask a series of questions and determine which is the best choice for you early in the process, said Bob Meighan, a vice president with the software company. There is, however, a way to override the software's recommendation if you want to make a different choice.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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