Hans Kasper, MS-CPA, PS

Itemized Deductions vs. the Standard Deduction
 

When an individual income tax return is calculated, a deduction is allowed from the taxpayer's income for the greater of a standard deduction or the total itemized deductions.

The standard deduction is a standard amount depending on your filing status as follows for 2006:

• Single ($5,150),

• Married filing joint ($10,300),

• Married filing separate ($5,150),

• Head of household ($7,550), and

• Qualifying widow(er) ($10,300).

The itemized deductions fall into six main categories. which are:

• Medical expenses,

• Taxes,

• Interest,

• Contributions,

• Casualty losses, and

• Miscellaneous deductions.

For example: if your status is married filing joint, then your 2006 standard deduction is $10,300; you can only itemize your deductions if they exceed the $10,300 standard deduction.  If your itemized deductions totaled $12,300, the only added tax deduction benefit that you would receive is $2,000 or $12,300 (itemized) less $10,300 (standard).

The details on the itemized deductions will be spelled out in future tax tips.

PHASE OUT OF ITEMIZED DEDUCTIONS

If your income for 2006 was greater than $150,500 and you are single, married filing joint, head of household, or as a qualifying widow(er), then your itemized deductions are reduced by 3% of your income amount that exceeds $150,500.

If your income for 2006 was greater than $75,250 and you are married filing separate, then your itemized deductions are reduced by 3% of your income amount that exceeds $75,250.

Basic Example of the calculation of taxable income: