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By Marcia Richards Suelzer, Toolkit Staff Writer
Most taxpayers can choose whether to claim the standard deduction or to itemize their deductions. There is no doubt that claiming the standard deduction is the easiest choice. Not only is the computation simpler, but there is no need to troll through your records to provide the necessary documentation and no worries about raising audit flags within the IRS. However, the simplest choice is not always the most sensible. Ultimately, you will want to make the choice that will save you the most money on your tax bill.
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. The following are the most common itemized expenses:
Example. Rebecca had $3,000 of qualified medical expenses in 2011. Her adjusted gross income was $50,000. She cannot claim a deduction for any of the medical expenses because 7.5 percent of $50,000 is $3,750, which is more than her expenses.
Example. In 2011, Sandy, whose AGI was $80,000, had an unreimbursed casualty loss of $12,000 to property he did not use in his business. In oder to determine how much he can deduct, he must first reduce the amount by $100 and then reduce that amount by $8,000 (which is 10 percent of his AGI.) As a result, Sandy can only deduct $3,900 of his $12,000 loss.
Know Your Standard Deduction Amount
Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are as follows:
|Filing Status||Standard Deduction
|Married Filing Jointly||$11,600|
|Head of Household||$8,500|
|Married Filing Separately||$5,800|
Those amounts do not apply to you if you are 65 or older or blind or if another taxpayer can claim an exemption for you. The additional standard deduction for the blind and senior citizens remains at $1,150 for married individuals and $1,450 for singles and heads of household. The standard deduction for dependents (those who may be claimed on another person's tax return, but who file their own return) is limited to the greater of (1) $950, or (2) the person's earned income plus $300.
Making the Choice
If the total amount of your itemized deductions is more than your standard deduction, you can usually benefit by itemizing.
Warning. While most taxpayers can elect whether to itemize or claim the standard deduction, some taxpayers are not eligible for the standard deduction. They must itemize--even if they have few, if any, deductible expenses. For example, when a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions. Other taxpayers who can't claim the standard dedution are nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.