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Accounting Information > Income Taxes > Tax Deductions

Tax Deductions

             Tax deductions reduce either your adjusted gross income, or if taken after figuring adjusted gross income, reduce your taxable income.  There are several deductions that may be used to reduce your adjusted gross income.  To reduce your taxable income, there are two deductions.  These are the standard deduction or itemized deductions.

             Some of the direct deductions used to reduce adjusted gross income are capital loss deduction up to $3,000, IRA contributions, rent and royalty expenses, 50% of self-employed tax liability, health insurance deduction for the self-employed, jury duty pay turned over to your employer, performing artist’s qualifying expenses, reforestation expenses, reservists’ travel costs, state and local official expenses, moving expenses, health savings account (HSA) contributions, Archer MSA contributions, alimony payments, student loan interest, domestic production activities deduction, business expenses, net operating losses, Keogh or SEP retirement plan contributions for yourself, and forfeiture of interest penalties because of premature withdrawals.

 

             The standard deduction varies by filing status.  The amounts for 2007 income tax returns are $5,350 for single or married filing separately, $7,850 for head of household, and $10,700 for married filing jointly or qualifying widow(er).  The standard deduction amount is increased for taxpayers and/or spouses who are age 65 or older and/or blind.  Also, the standard deduction amount is decreased for dependents that only have investment income.  If someone else can claim you as a dependent on their tax return, whether or not they do, you would have a reduced standard deduction amount.  For 2007, if you are not yet age 65 or blind, your standard deduction would be the larger of $850 or earned income plus $300, but only up to the standard deduction amount for your filing status.  For dependents who are age 65 or older or blind, the standard deduction involves a calculation.  First, choose the larger of $850 or earned income plus $300.  Add to this amount $1,050 if you are married or a qualifying widow or widower, or $1,300 if you are single or a head of household.  If you are both blind and age 65 or older, add this amount twice.

            If you choose to itemize your deductions rather than taking the standard deduction, you can claim several deductions to further reduce your taxable income.  These deductions include medical and dental expenses, taxes you paid, interest you paid, gifts to charity, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions.  In order to claim itemized deductions, you are required to complete and file Schedule A with your tax return.  If your adjusted gross income is above a certain level, your itemized deduction amount may be limited. 

             If you are married and filing a separate return from your spouse, and your spouse itemizes their deductions, you must also itemize your deductions.  You will not be able to take the standard deduction, even if you do not have anything to itemize.  Also, a nonresident or dual-status alien cannot claim the standard deduction., and the standard deduction cannot be taken on a return filed for a short taxable year due to a change in accounting period.

             Do you need help with figuring out your income taxes, including which schedules you might need to file and which expenses are allowed as deductions?  Then you are in the right place.  Try out the CPA search feature on this website to find a qualified professional in your area to assist you with all your tax and accounting needs.

 
 
 
 
 
 
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