WASHINGTON (AP) Married couples accustomed to itemizing their tax deductions every year might want to take a second look at their 2003 tax returns. A higher standard deduction may mean it's more beneficial to leave tedious itemizing behind.
Tax laws allow taxpayers to lower their taxable income by taking a deduction, either a standard amount or the sum of an itemized list. Deductible items like mortgage interest, real estate taxes, state or local income taxes and charitable contributions can quickly add up to more than the standard deduction.
Lawmakers acted last year to increase the standard deduction for married couples to twice the amount for single individuals. In 2003, married couples can claim a $9,500 standard deduction. The change was meant to eliminate one aspect of the ''marriage penalty,'' which can cause married couples to pay more tax than they would if they were two single people.
''The big news this year is the whopping standard deduction for married, filing jointly, people,'' said Jackie Perlman, senior tax research analyst at H&R Block.
Perlman said the change particularly helps couples whose itemized deductions total between about $8,000 and $9,500. In the past, those taxpayers got the biggest advantage from itemizing their deductions. Now, they can take an even larger deduction by using the new standard deduction.
Couples who aren't sure whether they will benefit most by itemizing or using the standard deduction will have to tally their itemized deductions and see how it compares to the standard amount.
Those couples might ''take the trouble to fill out the form and then find they didn't need it,'' said Bob Scharin, a senior tax analyst at RIA, a New York tax information and software company.
The higher standard deduction may also help higher income couples who lose a portion of their itemized deductions.
In 2003, married couples with more than $139,500 of income lose a portion of some itemized deductions. Certain itemized deductions are reduced by three percent of the amount above that threshold. Tax experts at PricewaterhouseCoopers estimate that the rule can cause some to lose as much as 80 percent of affected deductions. Deductions for medical expenses, investment interest and casualty losses aren't affected.
The overall limitation on itemized deductions is scheduled to shrink beginning in 2006 and disappear completely by 2010, only to reappear the next year. Limitations on personal exemptions claimed by high income taxpayers are scheduled for the same phaseout and return.
Once taxpayers choose to itemize their deductions, tax professionals recommend they minimize their taxes by using every deduction they can legally claim.
Somewhat sizable deductions can be taken for mortgage interest, taxes and some legal fees.
Tax laws also permit a miscellaneous deduction for a variety of smaller expenses to the extent the total exceeds 2 percent of the taxpayer's adjusted gross income. Often the largest deduction in this category is unreimbursed employee businesses expenses, but medical weight loss programs, professional journals and magazines, union dues and hearing aids also can qualify.
Tax advisers urge taxpayers expecting to itemize their deductions to familiarize themselves with the list and save any record or receipt that might document a qualified deduction.
Medical expenses can be deducted to the extent they total more than 7.5 percent of the taxpayer's adjusted gross income. That total cannot include any costs covered by an insurance plan. It can include copayments, insurance deductibles, prescription medications, eyeglasses and other expenses. Often overlooked are dental and orthodontic costs, which count as medical expenditures.
Certain state and local taxes, such as income, real estate and personal property taxes but not sales taxes can be deducted.
Donations to charity, whether money or property, can be deducted if the taxpayer has a receipt for the donation. Losses due to theft, fire, hurricanes and other disasters can be partially recouped if not covered by insurance.
On the Web:
Internal Revenue Service - http://www.irs.gov
Publication 17 Your Federal Income Tax - http://www.irs.gov/pub/irs-pdf/p17.pdf
© 2017. All Rights Reserved. | Contact Us