How Should I Claim Tax Deductions on My Income Tax Return & What Sort of Deductions Can I Claim?

It is important to realize that when an individual or couple files their taxes, there is two basic ways to claim tax deductions. The first is to claim a standard deduction. Essentially, a standard deduction a general dollar amount calculated using predetermined guidelines set by the IRS. Your standard deduction will change from year to year, depending upon such things as the tax year and your filing status for that year. The other option is to itemize your deductions (efile.com, 2008a). If a person decides to go this route, he or she can use certain actual expenses to reduce his or her taxes; however, these deductions must fit into the specified amount ranges (e.g., a certain percentage of your income or be below a certain amount) to be used as a qualified deduction on a federal income tax return (efile.com, 2008a; Hockenberry, 2008).

One point to remember, though, is that a married couple must go with the same way to claim their deductions, whether they are filing jointly or separately.

Examples of Common Tax Deductions

Five examples of everyday tax deductions are (1) deductions for charity contributions, (2) medical and dental deductions, (3) deductions for moving expenses, (4) student loan interest deductions, and (5) tax breaks for those who suffer a casualty or disaster (efile.com, 2008a; Internal Revenue Service, n.d.b).

Deductions for Charity Contributions

Let us take a closer look at each of these examples, beginning with deductions for charity contributions. Fundamentally, the federal government has realized how beneficial charity is to our nation as a whole. Therefore, it attempts to encourage Americans to give contributions to valid charities by offering tax deductions for these contributions. The IRS has created a list of all charitable organizations that Americans can donate to and receive a deduction on their tax return.

People who give to qualified "organizations that are either public charities, private operating foundations, and certain private foundations may deduct contributions representing up to 50%" of their adjusted gross income (The 'Lectric Law Library, n.d., Deductibility Limitations to 501(c)(3) Groups section). And those that gives to qualified "organizations that are private foundations may generally deduct contributions representing up to 30% of their adjusted gross income" (The 'Lectric Law Library, n.d., Deductibility Limitations to 501(c)(3) Groups section). Married couples can claim tax deductions for charitable contributions in both filing statuses; however, they must choose to itemize their deductions to claim them on their tax returns (The 'Lectric Law Library, n.d.).

Medical & Dental Deductions

A second type of tax deductions people often choose to claim are those for medical and dental expenses. These expenses can for a single person or include those for a dependant or a spouse. Nevertheless, they must have been from the current tax year that individual is filing for to be valid (efile.com, 2008b). Types of medical and dental expenses that can be claimed on a federal tax return include the following (efile.com, 2008b, Types of Medical/Dental expenses section):

Those that "alleviate or prevent a physical or mental defect or illness (not merely beneficial to overall health, e.g. vitamins, vacations etc.)."

"Premiums for insurance that covers expenses for medical care."

"Transportation to get medical care (20 cents per mile)."

"Qualified long-term care services and limited amounts for qualified long-term care insurance contracts."

However, these expenses must be over 7.5% of a person's adjusted gross income and that individual must choose to itemize before these deductions can be claimed (efile.com, 2008b). Because of the minimum percentage, if a husband or wife has a large number of medical or dental expenses but does not meet this percentage, the couple should seriously consider filing separately to receive these deductions (Hockenberry, 2008).

Moving Expense Deductions

Next, let us take a brief look at another common kind of tax deduction: deductions for moving expenses. If an individual moves because of his or her job, some of the expense of relocating might qualify as a deduction when he or she files a tax return. However, there are distance and time requirements that must be met before you can claim such a deduction. First, "the location of your new job must be at least 50 miles farther from your previous residence than your last office was" (Bell, 2008b, Moving tax-break obstacles, para. 2). Also, you cannot claim moving expenses that occurred a year or more before starting your new job. Finally, you must work a minimum of 39 weeks the first year of your new job to claim the expenses (Bell, 2008b). Married couples (who file either way) can qualify for this type of deduction, again, as long as they choose to itemize their deductions, instead of accepting the standard deduction (efile.com, 2008a).

Student Loan Interest Deductions

Another tax deduction that a person can utilize is a deduction for student loan interest. Any loans that were taken out and used only for expenses related to higher education are qualified for this deduction. As long as an individual has a modified adjusted gross income under $65,000, he or she will qualify to claim this tax deduction. For couples, however, they cannot have a modified adjusted gross income of $135,000 or higher and cannot file separately to receive this deduction. Lastly, there is a spot already on the federal tax form for this specific deduction. Therefore, a person can claim this deduction and still opt to claim the standard deduction for the rest of his or her deductions (Internal Revenue Service, n.d.c).

Tax Breaks for Victims of Casulties/Disasters

Finally, there is a special tax deduction for those that are victims of casualties or disasters. The federal government understands how difficult it can be for people to recover after unexpected tragedy. Consequently, the IRS offers deductions to help these individuals get back on their feet. Although it is impossible for the government to give these victims everything they have lost, these small deductions still can go a long way when an individual or family has lost many of their most valuable possessions (Bell, 2008a). The IRS defines "a casualty as the damage, destruction or loss of property resulting from a sudden, unexpected or unusual event" (Bell, 2008a, What counts as a casualty? section). Examples of such events include fires, floods, and hurricanes. Please note that any loss amount that is covered by insurance cannot be claimed when determining your tax credit and/or refund. In the end, married couples of all filing statues can claim this deduction, but they must itemize their loss deduction to qualify (Bell, 2008a).

References:

Bell, K. (2008a). Tax tip no. 24: Tax breaks for casualty, disaster victims. Retrieved June 26, 2008, from http://www.bankrate.com/brm/itax/tips/20010309a.asp

Bell, K. (2008b). Tax tip no. 36: Uncle Sam can help pay many moving expenses. Retrieved June 26, 2008, from http://www.bankrate.com/brm/itax/tips/20010302a.asp

efile.com. (2008a). Standard deduction vs. itemized deduction. Retrieved June 26, 2008, from http://www.efile.com/tax-deductions/compare-deductions/index.asp

efile.com. (2008b). Tax deductions: Medical and dental deductions. Retrieved June 26, 2008, from http://www.efile.com/tax-deductions/misc-deductions/medical-dental.asp

Hockenberry, C. (2008). Should my spouse and I file our taxes jointly or separately? Retrieved June 26, 2008, from http://www.babycenter.com/404_should-my-spouse-and-i-file-our-taxes-jointly-or-separately_14447.bc

Internal Revenue Service. (n.d.). Topic 456 - Student loan interest deduction. Retrieved June 26, 2008, from http://www.irs.gov/taxtopics/tc456.html

The 'Lectric Law Library. (n.d.). Tips on tax deductions for charitable contributions. Retrieved June 26, 2008, from http://www.lectlaw.com/files/tax13.htm