Should I Itemize or Take a Standard Deduction?
Itemizing your Deductions
It's the age old question that rears it's ugly head around April of every year, should I itemize or just take the standard deduction? While it is certainly easier to take the standard deduction, it is worth trying to itemize to see if it will benefit you financially. There are a few rules for itemizing; one, and I can't stress this enough, keep good records! The IRS may want to see where your figures came from and they are not lenient with sloppy bookkeeping. Two, in general, if you pay interest on a mortgage, it is usually a good idea to itemize. Third, if you are just not sure, do your return both ways and see which one saves you money.
Tax time can be stressful, but it doesn't have to drive you nuts if you stay prepared. Remember, some of the most infamous criminals have been caught because of sloppy bookkeeping and tax evasion. It pays to stay on the good side of the IRS.
The IRS will not need your records unless you are chosen for an audit. An audit is the financial equivalent of a colonoscopy. If the IRS wants to audit you, they think you owe them money! So, keep good records. Save all your receipts and write everything down in a log book. Be ready to defend your deductions. Most people won't be audited, but it is to your advantage to be prepared. Some professions are more likely to be audited than others, for instance, a salesperson who 's income is not always evident is more likely to be audited than a grocery store manager.
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Most people who pay a mortgage also pay enormous interest. In addition, there are sometimes mortgage insurance premiums to pay as well as real estate taxes to pay. These are all deductible. When you decide to itemize, you will want to deduct all your medical expenses, any state taxes you paid, insurance premiums, and gifts to charities, among other things. A complete list can be found on the IRS website, irs.gov.
So Which Way?
Finally, you will need to decide which way is in your best interest. To be sure that your decision is the most lucrative one, I would suggest that you fill out your return both ways. It doesn't cost you anything but time and you could save yourself hundreds of dollars. After all, the IRS isn't going to suggest the most beneficial for you, they want you to pay as much as is legally feasible. The best thing you can do is to be well informed.
© 2009 Mary Krenz
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