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Tax Deductions
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Many people wonder why their taxes are so high and the IRS takes so much out of their checks. Your taxable income is the amount of income that is used to determine the portion of taxes that you owe on your earnings. To reduce your taxes, you need to reduce your taxable income. Luckily, there are a few ways to reduce your taxable income and the amount of taxes you owe on those earnings. The IRS provides two ways to help lower your taxable income through tax deductions.

Standard Deductions

The IRS provides a standard tax deduction that is available for everyone to claim. The standard deduction provides a significant reduction in taxable income for most people. However, some find itemized deductions more beneficial. The IRS allows everyone to take the higher of the two deduction amounts.

The 2011 standard deductions are:

  • $5,800 for a single adult or married couple, filing separately
  • ¬†$8,500 for head of household
  • $11,600 for married couple, filing together or qualifying widow/widower
  • $950 for minor (or the amount of earned income plus $300, not to exceed $5,800)
  • $1,450 for single or head of household over the age of 65, or blind
  • $1,150 for married/widowed over the age of 65, or blind

The IRS also allows for a homeowner to claim an additional $500-$1000 (on top of the standard deduction) as a deduction for having paid property taxes.

 Itemized Deductions

If you feel you have more deductions than is captured under a standard deduction, you can itemize your deductions to list them specifically on your tax return. These deductions include those found in the standard deduction plus additional deductions for things such as domestic support payments, charitable donations, school or education expenses, penalties for early withdrawal of retirement funds, job search or relocation expenses, medical expenses, mortgage insurance expenses and student loan interest fees.

When claiming itemized deductions, begin with filling out Schedule A on tax Form 1040, Line 40. Schedule A allows you to add up your miscellaneous tax deductions by item. Detailing your expenses on tax-privileged items can significantly reduce your taxable income.