The ultimate test for when it is worthwhile to forget the no-questions-asked standard deduction and do the record keeping required to itemize is when the total itemized deductions surpass the standard deduction – an amount that is based on variables, such as filing status and age, and is adjusted upward each year to reflect inflation. So read on … do the numbers and decide! 2009 Tax time is here.
The Standard Deduction
The standard deduction for 2009 is $11,400 for joint filers and surviving spouse, $5,700 for singles or filing separately and $8,350 for heads of households. If a couple files separately they must BOTH file deductions the same way.
At age 65 and over you can add another $1,100 for married person and $1,400 for those filing single or head of household. You can also add another $1,100 for each blind person.
The standard deduction decreases for those who can be claimed as dependents on the returns of other people – can be as little as $950.
There is an inconsequential break that is in the books for 2008-09 that will benefit two types of clients – those who purchased homes late in the year and have NOT paid enough mortgage interest and taxes to make itemizing worthwhile OR those who have already paid their home mortgage. These home owners will not need to itemize but can claim extra deductions of up to another $1,000 for joint filers or $500 for other returns. The actual amount will be the same as the amount of the real estate taxes on Schedule A.
Another 2008-09 authorized addition to standard deduction (in place of Schedule A itemizing deductions) for those whose properties were damaged or destroyed in places declared federal disasters. The standard deductions is increased by the uninsured losses attributable to natural disasters like hurricanes, fires, floods, earthquakes and landslides without the requirement that it exceed 10% of AGI or exceed $500.
There is also an add-on for the standard deduction for those who bought a new motor vehicles between Feb 17 and Dec 31. The total of state and local sales and excise taxes will be added to the standard deduction up to $49,500 car purchase. The motor vehicle must be a new car, sport-utility, light trucks, motorcycles (at least 8,500 lbs) and mobile homes BUT NOT used cars or leases.
Many standard deduction extras are not available for those with AGI higher than $13K for individuals and $260K for joint filers.
On the other hand, itemizers will be able to have full deductions in charitable contributions, state and income tax or sales tax (not both), real estate taxes and interest on most home mortgages but only a limited write-off for medical expenses, casualty & theft losses and miscellaneous expenses.
AMT and Itemized/Standard Deductions
Whether using itemized or standard deductions all filers may have to deal with additional tax from the alternative minimum tax (AMT). AMT disallows standard deduction amounts and restricts several itemized deductions. It allows medical expenses only for the portion above 10% of AGI (not 7.5%). AMT also disallows deductions for interest on home equity loans (not used to purchase or improve home), state and local property and sales taxes, and most miscellaneous deductions.
Edi Alvarez, CFP®
BS, BEd, MS