Itemized deduction

As an Individual taxpayer, preparing your Federal income tax returns leaves you with a choice to subtract the standard deduction for your filing status or the total itemized deduction amount:

Itemize your deductions (from a list of allowable items) and subtract those itemized deductions from your Adjusted gross income (AGI).

Alternately, you can elect (and any applicable personal exemption deduction) to arrive at their taxable income.

From Wikipedia:

The choice between the standard deduction and itemizing involves a number of factors:

  • A comparison between the available standard deduction and allowable itemized deductions
  • Whether or not the taxpayer has or is willing to maintain the records required to substantiate the itemized deductions
  • If the total itemized deductions and the standard deduction are very close in value, whether the taxpayer would prefer to take the standard deduction to reduce the risk of change upon examination by the Internal Revenue Service (IRS). (The standard deduction amount cannot be changed upon audit unless the taxpayer's filing status changes.)
  • Whether the taxpayer is otherwise eligible to file a shorter tax form (like the 1040EZ or 1040A) and would prefer not to prepare (or pay to have prepared) the more complicated 1040 form and the associated Schedule A for itemized deductions.
  • If the taxpayer is filing as "Married, Filing Separately", and his or her spouse itemizes, then the taxpayer must itemize as well.

This limitation of itemized deductions is being phased out.
The total reduction is itself subject to a reduction.
For taxable years beginning in 2006 and 2007, the amount is reduced to 2/3 of the reduction, and for taxable years beginning in 2008 and 2009, the amount is reduced to only 1/3 of the reduction.

Get the most out of itemizing on taxes as a little planning can help maximize your deductions, read this Msn money itemized deduction 2008 tip and put money back in your pocket.

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