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Tax Deductions

Tax deductions are arguably the most important part of your tax plan. There are several ways for you to use tax deductions:

  • Above the line deductions are deductions from your gross income. On your tax form, subtract the total above-the-line deductions from the gross income to get the adjusted gross income, or AGI. Everyone that fills out a Form 1040 (whether they itemize or not) can claim above-the-line deductions.
  • A standard deduction is an amount of money the IRS allows you to subtract from your AGI based on your filing status. If you itemize, you don’t claim a standard deduction.
  • Itemized deductions, like the standard deduction, are deductions from your AGI. Itemized deductions are simply things you paid for that have an effect on your tax status.

Standard vs. Itemized deduction

Generally, you must decide whether to itemize deductions or to use the standard deduction. To figure out whether itemizing would be profitable for you, you need to determine whether the allowable expenses you paid during the year – for things like home mortgage interest and property taxes, state income or sales taxes, medical expenses, charitable donations, etc.—exceed the standard deduction for your filing status. Here are the basic numbers for 2013 returns:

Standard deduction for single taxpayers – $6,100

Standard deduction for married taxpayers filing a joint return – $12,200

Standard deduction for head of household taxpayers – $8,950

You cannot use the standard deduction if:

  • Some taxpayers must itemize deductions because they cannot use the standard deduction.
  • You are married filing as married filing separately, and your spouse itemizes deductions,
  • You are filing a tax return for a period of less than 12 months because of a change in your annual accounting method, or
  • You are a nonresident alien or a dual-status alien during the year. (If you are a nonresident alien who is married to a U.S. citizen or resident at the end of the year, you can choose to be treated as a U.S. resident. If you make this choice, you can take the standard deduction. For additional information, refer to Publication 519, U.S. Tax Guide for Aliens).
  • In addition, an estate or trust, common trust fund, or partnership cannot use the standard deduction.

Itemized deductions

You may benefit from itemizing your deductions on Form 1040, Schedule A (PDF) if you:

  • Cannot use the standard deduction
  • Had large uninsured medical and dental expenses
  • Paid interest or taxes on your home
  • Had large unreimbursed employee business expenses
  • Had large uninsured casualty or theft losses, or
  • Made large charitable contributions