Itemizing Deductions

On Monday, February 14th, the IRS began accepting all tax returns for electronic processing. Itemizers, school teachers and some college students had to wait while the IRS re-programmed their computers and re-designed their forms to add back deductions that were resurrected as part of the Tax Relief Act. Judging from the your reactions, many of you were quite upset. Well now that wait is over.

When Does Itemizing Make Sense? In the cases I've seen, itemizing generally makes the most sense when a person already has deductible expenses on things like state tax withholding, mortgage interest, and property taxes. But there are other situations when itemizing makes sense too: if you've suffered uninsured damage to your house or car, or incurred significant medical bills, itemizing might provide you with some tax benefit for your out-of-pocket expenses. See More About:  schedule a  itemized tax deductions

Alternative Minimum Tax "Minimizes" Some Itemized Deductions The AMT adds back certain itemized deductions to income when calculating the alternative minimum tax. In many instances, the AMT provides an exact offset whereby the tax savings of taking a deduction is perfectly matching with an increase in AMT. In practical terms, the green refund meter on your tax software won't change no matter how high you increase your deductions. The most common deductions that are added back for AMT are state income taxes, property taxes, and all those miscellaneous deductions. See More About:  form 1040  alternative minimum tax

Deductions You Don't Need to Itemize Personally I much prefer to take deductions listed on page 1 of the 1040, as these deductions work directly to reduce income tax and aren't bundled up with other deductions. Teachers can avail themselves of the deduction for classroom expenses, people who are relocated can take the moving expense deduction, and former college students can deduct their student loan interest See More About:  tax deductions  adjustments to income