Lets make this short and sweet.
Most Individual taxpayers have a choice when it comes time to prepare for your Federal tax returns. Generally, you have two choices when it comes down to tax deductions:
- Standard Deduction - A base amount of income in which is not subject to tax or deduction used to reduce income by taxpayers who do not itemize. The standard deduction for 2006 is $5,150.
- Itemized Deduction - A deduction based on a list of allowable items that a person can claim.
In other words, the taxpayer may generally deduct the total itemized deduction amount, or the standard deduction amount, whichever is greater. Everyone should explore their options and opportunities for itemized deduction before choosing to go with standard deduction. Here are some things you can deduct if you choose to itemize.
- Home ownership - For the most people who itemize, mortgage interest and property taxes are the largest deductions. You may also be able to deduct “points,” a type of fee paid when obtaining a mortgage.
- Sales tax - Taxpayers who itemize deductions can still deduct either state and local sales taxes or income taxes on their 2006 returns.
- Charitable gifts - Almost anything you donate to a charitable organization is deductible
- Work related costs - If you paid expenses for your job that weren’t reimbursed, you can deduct them, as long as they add up to at least 2 percent of your adjusted gross income
- Students/Teachers - If you’re a student or a teacher, you may qualify for two new tax deductions authorized by Congress late last year. Higher education expenses or out-of-pocket expenses for teachers.
- Property losses - For items not covered by insurance, you can deduct property losses from theft, vandalism, fires, storms, hurricanes, floods, tornados, and earthquakes.
- Medical and Dental expenses - You can deduct these expenses, but only if they’re more than 7.5 percent of your adjusted gross income.