Friday, March 22, 2013
Standard or Itemized Tax Deduction?
Taxpayers are allowed to decide each year whether to take the standard deduction or to itemize their deduction when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions. The 2012 standard deduction, available to all taxpayers, regardless of whether they own a home, is $11,900 for married filing jointly and $5,950 for single taxpayers. Let's look at an example of a homeowner couple with a $150,000 mortgage at 3.5%. The standard deduction would give them $2,650 more than the total of their interest paid and property taxes of approximately $9,250. If they were in the 28% tax bracket, the actual tax savings would be $742.00. When mortgage rates were considerably higher, many people expected the interest and property taxes to easily exceed the standard deduction but with today's low rates, a comparison is certainly justified. There are other things that could come into consideration like charitable contributions, medical expenses and casualty losses. Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.