As you might expect, the IRS website provides a wealth of information about personal income tax. From help with tax forms to even ways to get free tax assistance, the IRS can be a great resource during tax season. As part of its effort to educate taxpayers, the IRS recently published 6 facts about the standard deduction versus itemized deductions. With the tax-filing deadline right around the corner, a review of these differences and some important changes in 2010 is in order.
1. Standard deduction: The standard deduction amount you are entitled to claim is based on your filing status. For 2010, the standard deductions are as follows:
[In Pictures: 10 Smart Ways to Improve Your Budget.]
2. Some taxpayers have different standard deductions: Not everybody in the above categories can claim the same standard deduction. The amount depends on a number of factors, including your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If you fall into any of these categories, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. And to complicate things even more, the standard deduction amount also depends on whether you claim the additional standard deduction for a loss from a disaster declared a federal disaster or state or local sales or excise tax you paid in 2010 on a new vehicle you bought before 2010. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.
3. Limited itemized deductions: In prior years, your adjusted gross income could limit the amount of itemized deductions you could take. For tax year 2010, your itemized deductions are no longer limited because of your AGI.
4. Married Filing Separately: If you are married and filing separate returns, when one spouse itemizes deductions, the other spouse cannot claim the standard deduction.
[In Pictures: 12 Money Mistakes Almost Everyone Makes]
5. Not everybody is eligible for the standard deduction: If you fall into one of these categories, you can't take the standard deduction: nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
Now if all of this makes your head spin, you have a couple of options. First, you can of course hire a tax professional to prepare your taxes. That's what my wife and I do. There's still a lot of work to do to pull all of the information together, but at least we know our taxes are being done right. And a second option is a tax software package like TurboTax or TaxAct. Both can easily navigate the rules relating to standard and itemized deductions.