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Tax Deductions

How Does the Government Use Tax Cuts?

How Does the Government Use Tax Cuts?

The United States tax system is a progressive levy that processes the levy based on an individuals income. Each taxpayer is placed under an appropriate tax bracket; each bracket possesses different percentages which demonstrate the amount of taxes the government is collecting. A tax cut therefore is a reduction in these tax rates. 
Tax cuts have immediate effects which generally decrease the real income levied by the government agency and increase the real income of the individual or corporation who receives the tax cut. This relationship in the long run, however, eventually balances out for the loss of government income is mitigated through the leveling off of tax rates. 
Tax rates depend on federal legislation and the viewpoints taken by the political party in office. Depending on the original tax rate, tax cuts can provide corporations and individuals with a legitimate incentive to invest in fixed-income securities or equities. An increase in investment stimulates the economy, this relationship reveals the long term economic effects of a tax cut on society. 
Tax cuts have long been an economic resource utilized by many government agencies and political parties. It has long been theorized that tax cuts generate additional taxable income, which in the future, can yield more revenue. The increased income not only sparks incentives to invest, but also yields a higher tax rate for the upcoming taxable year. 
That being said, the macroeconomic effects of a tax cute are not fully understood nor predictable. The confusion or ambiguity stems from the unpredictability associated with a tax payer’s incentives or motives when they receive an increase in their net income. This principle is also applied to the government, for the operations under a reduced income of the particular cabinet are not assumed.

Understanding Your Tax Rebate

Understanding Your Tax Rebate

A tax rebate is a refund given on federal or local taxes to corporations or individuals who qualify. Tax rebates result in the government issuing a paper check to an individual for a surplus of taxes previously paid. In essence, the individual withholds pay during their work week; this pay which is used by the federal government to fund public services, wars, and current expenditures is later returned to the individual in the form of a tax rebate.
Tax rebates are typically offered to those applications where the tax liability is less than the total amount of taxes paid. The most common case of a tax rebate occurs when the individual taxpayer owes less than the sum of the total amount withheld from their incomes taxes. 
Therefore, the individual fulfilled his or her income tax requirements during the course of the year. Tax rebates result when the estimated taxes paid plus the refundable tax credits claimed exceed the amount owed on the income tax form. 
Each tax year, throughout the country, a massive number of U.S. taxpayers receive tax rebates; the large percentage of tax rebates stem from withholding calculations and the earned income tax credit that was recently passed by Congress. 
Withholding is calculated on an annualized basis, therefore an individual just entering the work fore will have more tax owed than withheld. The key to earning a rebate, therefore, is to accrue a year’s salary, because each pay period represents a percentage withheld by the federal government.

What to Know About Tax Refunds

What to Know About Tax Refunds

Tax refunds are given to individuals or corporations who have paid too much federal tax throughout the course of the taxable year. A tax refund is money owed to the tax payer because the particular applicant’s tax liability is less than the taxes paid. Throughout the taxable year the federal government takes money out an individuals paycheck. Each pay schedule is reduced by a certain percentage through the federal levy. 
The government takes the money to fund the military, public services, and current expenditures. When the taxable year ends and the individual files his or her tax return the government will view the amount of income held during the year versus the amount currently owed. If the amount taken during the year exceeds the amount owed the federal government will issue a tax refund in the form of a paper check.
In 2008, over 75% of tax returns yielded a tax refund check. The average refund check was worth over $2,000, this simply means that 75% of the tax applications had more money withheld during the year than owed on April 15th of the following year. 
Tax refunds can either be issued through paper check or deposited directly into the individuals bank account. If choosing the direct deposit option, the individual receiving the tax refund has the option of splitting the refund between up to three separate bank accounts. Tax refunds, especially through the increased options, enable individuals to increase consumption, savings, or personal investment. 

All About Tax Deductions

All About Tax Deductions


Tax Deductions Background

A tax deduction reduces a taxpayer’s income which in turn effectively reduces their percentage owed to the federal government. All individuals are placed in a tax bracket; the lower the income the lower the percentage the individual will pay in taxes. A tax deduction is awarded to individuals or businesses who have spent a considerable amount of their income on educational expenses, interest payments associated with mortgage or equity loans, charitable donations etc. Tax deductions have the ability to knock an individuals income into a lower tax bracket.

Tax Exempt

Tax exemptions are granted by the federal government to certain individuals, income classifications, properties, assets, and organizations. A tax exempt status allows the entity to fore go a certain tax. The exemptions, however, are only available to individuals or entities who partake in specific programs or meet the specific requirements established by the appropriate government agency. That being said, tax exemptions are typically given to charitable organizations or various government agencies. The individuals who receive exemptions are typically veterans or religious clergymen.
Tax Relief

Tax relief is offered to individuals who have back taxes or who have failed to properly file their taxes. The federal government’s tax levy is collected on April following the end of the taxable year. In addition to the time restraint, each form must be properly filed and the calculations associated must be accurate. Problems or inaccuracies can result in fines or forced interest payments. When these situations arise they must be immediately quelled or else the fees associated will exponentially grow.

Tax Cut
A tax cut is a piece of legislation that arises from a political party’s economic philosophy. Tax cuts lower the tax rates associated with the federal income tax levy. If an individual is forced to pay 28% of their income one term, a tax cut will decrease their total percentage owed. Tax cuts are instituted because they increase the net income of the general population. The increased liquidity and income offered by the tax cut is thought to entice investment and consumption–both essential variables to drive an economy. 
Tax Rebate

A tax rebate is a refund or cash amount awarded to an individual or organization. Entities who receive tax rebates are literally paid, either in check form or through direct deposit by the United States Federal Government. Tax rebates stem from the individuals wages being withheld throughout the year. During a pay cycle the government takes money as a form of tax; when the money withheld during the year exceeds the levy owed on tax day, a tax rebate will be distributed.

Tax Refunds
Tax refunds are monies awarded to entities who have paid too much tax during the taxable year. In 2008, over 75% of tax returns were attached with a tax refund check. The average refund was worse in the neighborhood of $2,000. Tax refunds increase an individuals income, liquidity and ability to save or consume. The money, in theory, is pumped back into the economy in the form of consumption or investment.

Understanding Tax Deductions in the US

Understanding Tax Deductions in the US
A tax deduction reduces a taxpayer’s total income which in turn, decreases the amount of money owed to the taxing government agency. In essence, tax deductions are breaks granted by the government levying the tax. 

The deductions does not tangibly reduce an individuals income, but instead, reduces the percentage tax that is dependent upon the income bracket that the taxpayer falls under. 
Tax deductions differ from tax credits, because a tax deduction reduces the individuals taxable income, whereas a tax credit is an amount of money offered to the taxpayer from withholding wages throughout the taxable year. 

If an individual, for example, has $50,000 worth of taxable income, and they receive a $1,000 tax deduction, their taxable income decreases to $49,000. The individual does not save $1,000; the government taxes the $49,000 income as oppose to the previous $50,000. 
The decreased income yields a smaller percentage tax payment to the government. In contrast, a tax credit in the same situation would reduce the amount of taxes by $1,000. The actual savings is therefore equal to the tax credit. 

In the United States tax system the amount levied is related to the individual’s tax bracket. Individuals with low incomes are taxed at lower rates; as income rises, the proportionate tax-rate percentages rise. 
Tax deductions are used to lower taxable income to the point that the individual’s tax bracket may fall to a lower percentage rate. The current system allows for numerous tax deductions; certain deductions are available for individuals and businesses. 
Interest on specific loans (mortgages and equity loans), educational expenses, state and local taxes, charitable donations, tax advice, moving expenses, and capital losses are all tax-deductible items. 

Understanding Tax Exemptions

Understanding Tax Exemptions

Various tax systems, including the Untied States Federal Tax system, grants tax exemptions to certain individuals, organizations, income classifications, property, and assets. A tax exempt status typically provides a taxpayer some sort of relief from their tax payments. 
An exemption can reduce the individuals tax rate, or impose a tax on only a percentage of the items regularly taxed. Tax exemptions are only available to individuals who partake in specific programs or who meet the requirements established by a local, state, or the federal government. In addition, numerous agencies or relief programs, because of their public service, are exempt from taxation.
Common examples for exempt status include: charitable organizations receive exemption from income taxes and property taxes, veterans receive tax exempt status for numerous levies, and exemptions under multi-jurisdictional purposes.
An exemption removes an individual from taxation for a particular class or item. This is held separate from a reduction of taxable items; a tax exempt organization or individual is not regulated to pay the particular tax, whereas an individual who receives a deduction simply has their income reduced to a lower rate of taxation. 
In theory, tax exemptions can be granted by any level of government that issues a levy, however, in broader systems lower tier governments are restricted from offering an exemption. Although an individual (veterans and clergyman) can receive such a status, a an exemption is typically held for public services or charitable organizations. 
Educational institutions, pension schemes, charitable organizations, and various government agencies commonly receive tax exempt status by both the federal government and the appropriate local governing system which the public entity operates under.

Knowing the Small Business Tax Deductions

Knowing the Small Business Tax Deductions

Business tax deductions are important to any small business with a handful of paid employees. The more business tax deductions in which a small business qualifies for, the lower the business’s taxable profit will be. The business will then have extra money at the end of the tax season to reinvest, spend, or whatever reason it would need it for. 
To prevent itself from missing out on business tax deductions and other benefits, it is important for a business to remain organized and to keep an adequate backlog of company documents and records. For small business tax deductions, there are two main types of expenses that should be kept in mind when filing tax returns: business expenses and capital expenses.

Business Expenses:
Business expenses include all costs that are incurred by a company which are required for the business to operate its daily operations normally. For businesses that operate for a profit, costs of conducting business are almost always tax deductible. Examples of business expenses include the renting of storefronts or office space, business trips, and employee payroll are all operations within a business that may be written off.


Capital Expenses:

All costs that are incurred by a business for purchasing assets such as property and factory equipment, which have life spans of a year or more and improve the overall quality of the business’s output are capital expenses. Capital expenses do not qualify initially as a business tax deduction like business expenses do; instead, capital expenses may be recovered by a small business through the process of depreciation, amortization and/or depletion. 
Generally, these processes allow a business to deduct a portion of the value of these assets each successive year in order to recover the money spent on assets over a certain amount of time. For example, if a plumbing company purchases a van to drive to customer houses, the value of the van is depreciated over time as a business asset and the depreciation value is deducted through course of the business’s ownership of the van.
Specific Small Business Tax Deductions:

Whether expenses are business or capital expenses, the following items are business tax deductions commonly found within small businesses:
Auto Expenses:

In many cases, small businesses purchase vehicles for employees to travel with for conducting activities outside of the workplace. If a small business owns a vehicle, the costs of maintaining the vehicle and the depreciated costs are tax deductible. There are two main methods for claiming expenses on a company vehicle: the actual expense method and the standard mileage rate method. 
The actual expense method requires a greater amount of information to be kept on file so that all expenses are recorded and added up for the tax return. In the standard mileage rate method, the number of miles driven using the vehicle are recorded, including all expenses of paid tolls and parking costs. As of 2010, the standard mileage rate is 50 cents per mile driven (down 5 cents from 2009, in which it was 55 cents per mile).
A brand new car purchased by a small business for company use gives a larger return on small business tax deductions. In addition, the actual expense method is the only method which covers depreciation on the vehicle. The standard mileage rate can only be used by a small business if the method is chosen in the first year that the vehicle is put into use by the company. Company cars are allowed to be driven for personal use, though only the business use of the car may be tax deductible. 
To ensure that only the business end of vehicle use is included in small business tax deductions, the IRS keeps track of a business owner’s vehicles. If the owner only has one car for both business or pleasure, the IRS will not accept business tax deductions for non-business usage of the vehicle.

Expenses of Beginning a Business:

When a business is in operation, it may write off certain business expenses, such as advertising, office supplies and repairs. Before a business begins its operations, however, any capital expenses placed into a business for getting it off the ground may be deducted up to $5,000 in the first year of business. 
The remainder of such capital is required to be paid off in equal amounts over the following fifteen years in which the business is still operating. Since most businesses do not begin making a profit in its first few years of operation, business deductions for capital expenses are important to offset losses incurred by a business in its infancy.
Books and Legal Fees:
The expenses that a business uses for professional legal guidance and/or business books purchased for further legal guidance are fully business tax deductible. When a fee is paid to a lawyer, consultant or tax professional, it may be deducted in the year that it the payment is given. If the services are paid through the terms of a contract for several years, however, the payment must be deducted over the course of the contract for services.
Entertainment:

When operating a business, it is not uncommon for a business to entertain clients and prospective customers through various means. For entertainment, small businesses usually can deduct 50 percent of its cost if it is directly related to the business’s operations and the business is discussed during the entertainment event or if the event is associated with the business and meetings are held before and/or after the event. 
When an entertainment event takes place at a business, in order to ensure that the business tax deductions for it are handled properly, the receipt record should be kept with a note on the receipt explaining the purpose of the event.

Traveling:

Any necessary expense that is incurred during a business trip is small business tax deductible. This can include airplane tickets, taxis, hotels, ordinary meals, expenses associated with car travel, and even clothing dry cleaning. As a general rule, pleasure expenses may indeed be included in the deductible amount, however, if other family members not associated with the business are taken along on the trip, only the business employee’s expenses are included.
Interest:

When a business owner is using credit to finance a business purchase, the interest and carrying charges are tax deductible. In addition, a personal loan which is used to finance the business is fully tax deductible as well. It is important for the business owner, as such with all matters, to keep organized and detailed records to prove that the money was indeed used to finance the small business.
Purchasing of New Equipment:

Although must equipment purchased for small business use must be placed under capital expenses, certain qualifying equipment may be tax deducted completely the same year in which they are bought. According to Section 179 of the Internal Revenue Code, up to $250,000 worth of brand new equipment may be included in small business tax deductions. Real estate, inventory bought for the purpose of resale and other property are not included under these provisions.
Software for Business Use:

New software bought for the purpose of business operation may be depreciated over a period of three years. There are some exceptions, however. Software which was purchased and used from January 1, 2003 through December 31, 2010 are eligible for business tax deductions under Section 179, which states that 100 percent of the cost of the software will be fully deducted. In 2011, software will no longer be deducted when bought straight off the shelf.
In addition, software which is included in the purchase of a new computer and is not listed separately as a cost, it is included as the hardware and depreciated over a five year period. The entire computer system, including all software may be written off all at once if it is below a certain allotted amount. This amount changes every year ($250,000 is 2009 and $133,000 in 2010).

Understanding Schedule C Tax Deductions

Understanding Schedule C Tax Deductions

The Schedule C form is the form that is filled out by a self-employed taxpayer (also known as a sole proprietorship) when the taxpayer is reporting income and expenses. The form will require from the taxpayer their business information, including the business name, in addition to the profession in which it falls under, or the service it provides. 
Since a self-employed taxpayer tracks their own revenue, expenses and net income, the method of accounting must be specified as well, so that the IRS can understand how the accounting information contained within the Schedule C form has been calculated. The Schedule C form is divided into five different sections, labeled “Income” (I), “Expenses” (II), “Cost of Goods Sold” (III), “Information on Your Vehicle” (IV), and “Other Expenses” (V).
When a sole proprietorship is preparing the Schedule C Form for a tax return, section I, “Income” should be focused on first. This section asks for the amount of gross sales, as referred to on the taxpayer’s Form W-2, as well as returns and allowances, which are subtracted from the gross income. 
The taxpayer must also specify the cost of goods sold, which is the term used to describe the amount of money spent manufacturing, assembling, and preparing goods which are sold by the business. 
In most cases, especially for retailers, the cost of goods sold is the largest expense that the company must pay for. This is also usually the largest tax deductible expense contained within the Schedule C form. 
In this case, only the goods that were actually sold are included within the tax deduction. Any goods which are still in a warehouse or have gone unsold are not going to be tax deductible. Part III, “Cost of Goods Sold” provides a step by step guide on the Schedule C Tax Form about how the amount is calculated and transferred back to Part I.
Part II of the Schedule C Tax Form, “Expenses”, contains an abundance of other expenses in alphabetical order, which are tax deductible for a sole proprietorship. The contents of this section are:
         Advertising
         Car and truck expenses
         Commissions and fees
         Contract labor
         Depletion
         Depreciation and section 179 expense deduction
         Employee benefit programs (other than pension and profit-sharing plans)
         Insurance (other than health)
         Interest (mortgage and other)
         Legal and professional services
         Office expense
         Pension and profit-sharing plans
         Rent or lease (vehicles, machinery, equipment and other business properties)
         Repairs and maintenance
         Supplies (not included in Part III)
         Taxes and licenses
         Travel, meals, and entertainment (travel and tax deductible meals and entertainment)
         Utilities
         Wages
         Other expenses (listed on Part V)
A sole proprietorship will find this section to benefit them, offering many opportunities for to take advantage of a tax deduction. While tax deductible wages and pensions are rare in the case of a sole proprietorship, many of the other tax deductions, such as car and truck expenses, advertising, and office expenses will be quite useful. 
Part V of the Schedule C Tax Form is solely dedicated to “other expenses” which may be special to a particular business and qualify as tax deductible. Once all other expenses are listed and added together, the total amount is then placed back into part II of the form.
Other expenses, which are ordinary and necessary for the business may be added in Part V which do not fit well into the categories listed in Part II. For instance, if a job requires that a person perform a great deal of research through the purchase of books, and subscribing to magazines and other various forms of publications, these costs and subscriptions can be considered “other expenses”. 
Having an extra phone bill for a business line, website maintenance, and Internet domain expenses may also qualify under this section. Charitable donations are not included within the other expense section and fines or penalties paid to the government for law violations are not included.
Amortizations can also be included within the other expense section, such as the costs associated with pollution-control facilities, costs incurred for research and experimentation, qualified revitalization expenditures, amounts paid to acquire, protect and register trademarks and service marks, good will and costs for obtaining a musical copyright.
As a person who is self-employed and pays for one’s own health insurance, the full cost of the health insurance premiums may be tax deductible. Tax deduction of health insurance expenses, however, requires that the business has received a net profit. If a net loss is incurred by the business, health insurance premiums may be tax deductible, but must be listed on Schedule A as a medical expense.

How are Charitable Contributions Taxed?

How are Charitable Contributions Taxed?

Charitable contributions, which are donations to and for use of non profit enterprises, are eligible for a charitable tax deduction are defined through 26 U.S.C. § 170(c) of Internal Revenue Code. Charitable contributions are only eligible for a donations tax deduction, unless however, the taxpayer chooses to itemize the tax deductions in the tax return under Schedule A (form 1040), instead of choosing a standard tax deduction process. 
There are certain restrictions that apply to a charitable tax deduction, as donations to certain non profit organizations do not qualify, and only 50 percent of a taxpayer’s adjusted gross income are included in a charitable tax deduction. For appreciated property, 30 percent of the taxpayer’s adjusted gross income is considered the limit, also applying to certain types of organizations, such as fraternal societies and non profit cemeteries. A 20 percent limit is placed on gifts of capital gain property.

Money Contributions:

Money contributions that are given to charitable organizations for a donations tax deduction, include such donation methods as cash, check, credit card and payroll deductions. If a taxpayer has provided a monetary charitable contribution to an organization, especially in cash, a receipt will be required for the organization to claim a contribution to the taxpayer in order to receive a charitable tax deduction. 
Supplemental contributions and expenses are also included in this category. Mileage incurred or gasoline used for the purpose of providing the contributions may be receive a charitable tax deducted, including any food or supplies given during volunteer work of any kind. Time spent in an effort to perform charity work, however, is not counted in a donations tax deduction.

Property Donations:

Donating property to a charity is eligible for a donations tax deduction and is usually calculated using the fair market value of the property itself. However, the value of the donated property should be subtracted by the amount of capital gain or income received if the taxpayer had sold the property for its fair market value. 
For new items, the actual price paid to purchase the items may be used when calculating charitable tax deductions, though for used items, such as clothing and furniture, the fair market value is used. A fair market value of an item can be found in a variety of ways, such as by searching through pawn or thrift shops that resell used items which are similar to the ones donated. All items, especially household items should be in good to excellent condition before being qualified for a donations tax deduction. When donating property to a charitable organization, a copy of Form 1098-C is given to the taxpayer from the organization, which must be included with the taxpayer’s tax return.
When a taxpayer has contributed property to a charity, if the value of the property exceeds $500, the taxpayer must fill out Tax Form 8283 along with the tax return. For non-cash items that value at $5,000 or more, the taxpayer must hire a qualified professional to appraise the property. Such items that value more than $500, such as a vehicle, will use the lower of all fair market values of the vehicle after it is donated to charity. 
If the organization sells the car, however, the gross value of the proceeds are used to make the charity tax deduction. In any case, the fair market value may be used if the charitable organization uses the vehicle a great deal, makes improvements or modifications to the vehicle, or if the organization donates the vehicle according to its purpose as an organization.
Time and Services:

As mentioned above, the donation of a taxpayer’s time and services to a charity does not qualify as a donations tax deduction. Even so, the expenses paid as a result of the time and services may be included.

Return Gifts:

In certain instances, a charitable contribution may be followed up with a return gift to the donating taxpayer from the organization that received the donation. Depending on the nature of the return gift, the value of the gift may be required to be subtracted from the total value of the donation. The return gift must be of a substantial value if it is subtracted from the total value of the donation. Small items that are of unsubstantial worth are purposely overlooked and are not included in the net value of the donation.

The Facts on Itemized Tax Deductions

The Facts on Itemized Tax Deductions

An itemized
tax deduction is a type of eligible expense that an individual taxpayer has a
incurred and may report on their federal income tax returns so that the amount
of the individual’s taxable income may be reduced. An itemized tax deduction is
an alternative option for a taxpayer to choose, as opposed to the standard
deduction. When filing taxes, a taxpayer may compute the adjusted gross income
and discover the amount of itemized tax deductions, which can be subtracted
from the gross income to calculate the total amount of taxable income. Next,
the taxpayer may use the standard deduction method to compute the amount of
taxable income. Whichever method yields the greater amount of deductions will
generally be the method chosen by the taxpayer when the tax return is filed.

What are Allowed for Itemized Tax Deductions?

There are a number of itemized tax deductions which may be included in a tax
return to reduce the amount of taxable income of an individual:

        
Medical
expenses are eligible to be included in itemized tax deductions, up to a
certain amount. The amount of eligible medical expenses is calculated by
determining 7.5 percent of a taxpayer’s gross adjusted income and subtracting
it from the total medical expenses. Medical expenses which are eligible for
inclusion are:

    Payments to doctors, dentists,
physical therapists, psychologists, health care professionals, etc.;

    Premiums of medical insurance;

    Payments for prescription
medication;

    Travel expenses for transport
to medical facilities for treatment, including mileage;

    Non-deductible medical
expenses, such as health club memberships;

        
Taxes,
both state and local. These include:

    Income taxes;

    Property taxes;

        
Mortgage
interest expense on debt which has been incurred on up to two homes;

        
Investment
interest, up to the amount of income returned from such investments;

        
Charitable Contributions to recipients that are eligible. The
deduction is allowable between 30 to 50 percent of the adjusted gross income,
depending on the recipient. Though goods and money are accepted for itemized
tax deductions, services are not, except for expenses incurred for performing
such services. Charitable contributions eligible for itemized tax deductions
generally are given to:

    Churches, synagogues and other
houses of worship;

    Federal, state, or local
government organizations;

    Fraternal or veteran
organizations;

    Individuals and political
contributions are not included as a tax deductible contribution.

        
Losses
that have been incurred due to theft or casualty to the extent that the losses
exceed 10 percent of a taxpayer’s adjusted gross income.

        
Losses
incurred due to gambling to the extent of the amount of total income created
due to gambling winnings. 


Miscellaneous Itemized Tax Deductions:

Miscellaneous itemized tax deductions differ from typical itemized deductions
because miscellaneous deductions have a 2 percent minimum. This means that a
taxpayer can only deduct miscellaneous itemized deductions that total at least
2 percent of their adjusted gross income. Any deduction not listed in 26 U.S.C.
§ 67(b) is considered to be a miscellaneous itemized tax deduction. These
usually include:

        
Clothing
and equipment which has been purchased for job-related activities, such as
hardhats and uniforms. Suits and tuxedos are not eligible for deduction;

        
Subscription
memberships to newspapers, magazines and other periodicals for purposes
relating to a job;

        
Union
dues.


Standard Tax Deduction and Itemized Tax
Deduction Comparison:

Not everyone is eligible to choose between itemized tax deduction and standard
tax deduction. Only taxpayers who meet certain requirements may choose the
standard tax deduction method. The taxpayer must be either a citizen of the
United States or a resident alien to be eligible for a standard deduction. If
the taxpayer is a nonresident alien, he or she will not be able to choose the
standard method. When a married couple files their tax returns, if they are
filing separately, if one spouse chooses the itemized tax deduction method, the
other spouse will not be eligible to choose the standard method. Instead the
spouse should either choose itemized tax deduction or claim a “0” for
the calculated total of the standard deduction. In addition, itemized tax
deductions require prior records to be maintained to prove their validity.

When a taxpayer has calculated the total amount of taxable income when using
both the itemized tax deduction and standard tax deduction methods, the two
differing totals should be carefully analyzed. Even if choosing the itemized
tax deduction method yields a more beneficial return for the taxpayer, if the
difference is negligible between the itemized and standard totals, it may be
wiser to choose the standard method. The reason this should be considered is
because the Internal Revenue Service (IRS) may disagree with the itemized total,
and may make changes that reduce the amount of return. A standard deduction
will not be adjusted by the IRS unless a taxpayer’s filing status is changed.

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