Categories of Tax Deductions
Every year, taxpayers try to take advantage of as many tax deductions as possible. Tax deductions help minimize a taxpayer's tax liability. There are two main categories of tax deductions. They are tax deductions that apply before adjusted gross income (AGI) is computed, and tax deductions that apply after adjusted gross income is computed.
Deductions for AGI
Deductions for adjusted gross income are basically adjustments that lower a taxpayer's taxable income. Typical deductions that are taken into account before computing AGI, include moving expenses, educator expenses, student loan interest, tuition and fees, and health savings accounts. In addition, you may be able to deduct your contributions to a deductible Individual Retirement Account (IRA) or other pension plan. Taxpayers are eligible for these deductions regardless of whether they itemize or use the standard deduction.
Deductions From AGI
Taxpayers may elect to itemized deductions or use the standard deduction. Always select the greater of the two, that is you should choose the method that produces the greatest number. In 2009, the standard deduction for a taxpayer filing head of household is $8,350. For taxpayers who file single or married filing separate, the standard deduction is $5,700. Couples who file a joint return will receive a standard deduction of $11,400.
Itemizing allows you to deduct your medical and dental expenses to the extent that they exceed 7.5 percent of your AGI. You'll be able to itemize any charitable donations you made throughout the tax year. Mortgage interest paid, real estate and personal property taxes are common deductions. Furthermore, you'll be able to deduct casualty and theft losses, as well as miscellaneous expenses. Any miscellaneous expenses claimed by a taxpayer must exceed 2 percent of AGI.
Personal And Dependency Exemptions
Taxpayers are granted personal exemptions, as long as they can't be claimed as a dependent on another taxpayer's tax return. An additional dependency exemption is allowed for every individual that may be claimed on the taxpayer's tax return. For 2009, the personal and dependency exemption amount is $3,650.
