Most taxpayers can choose between itemizing tax deductions to reduce taxable income, which requires accurate record-keeping and support, and taking the standard deduction. The standard tax deduction is a fixed amount that reduces the amount of money on which taxpayers owe the federal government. Generally, if you can show that you’ve had more deductible expenses than the amount of the default standard deduction, it’s better to itemize.
IRS publication 501 outlines each year’s deduction amounts. There are some cases where adjustments should be made to the standard deduction. For example, if you are 65 or older, or if you are blind, the standard deduction increases.
To lower your tax burden this year by up to $5,000, consider opening up an IRA (Individual Retirement Account). Mint.com has an IRA wizard that can show you what kind of IRA to open and where to open it.
The personal exemption is another deduction to your income that you can take for yourself and for any dependents.
|Married filing jointly||$11,900||$11,600||$11,400||$11,400|
|Married filing separately||$5,950||$5,800||$5,700||$5,700|
|Head of household||$8,700||$8,500||$8.400||$8,350|
Note: When you file taxes in April 2012, you’re filing for 2011 income, so review the numbers in the 2011 column and understand the federal tax brackets. The numbers for 2012 are predicted and are not yet official.
A dependent child can increase the standard deduction by $950 or the amount of earned income plus $300, whichever is greater. That increase has a maximum of $5,700.
Do you itemize your tax deductions or take the standard deduction?
Updated October 24, 2011 and originally published January 5, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.