Standard Deduction and Itemized Deductions

Taxpayers may choose between taking the standard deduction or itemizing his/her deductions. If the total of your itemized deductions exceeds the standard deduction, you should itemize to obtain the maximum tax benefit. You may select which one is best for you each year, you do not have to stay with one or the other.

However, if you are married filing separately, both spouses must select the same method. If one itemizes the other must also itemize. If one takes the standard deduction, so must the other.

The amount of the standard deduction is indexed for inflation, meaning it increases each year. For 2008 returns, the following is allowed for the standard deduction:

Married filing jointly $10,900
Married filing separate 5,450 per spouse
Head of Household 8,000
Single 5,450

In addition, if you or your spouse is 65 or older or is legally blind you will get an additional amount for the standard deduction. This additional amount is $1,050 ($1,350 if you are single) for each spouse 65 or over and for each spouse that is legally blind. You do not get an additional standard deduction for dependents who are blind or 65 years of age.

The standard deduction for someone who can be claimed as a dependent on another's return is limited to earned income plus $300 with a minimum standard deduction of $900. It cannot exceed the amounts given above for the standard deduction.

Itemized Deductions

Itemized deductions fall into six broad categories - medical, taxes, interest, charitable contributions, casualty and theft losses, and miscellaneous. Generally speaking, you can deduct an item only in the year in which it is paid. However, for tax purposes it is considered paid if the party giving the service has been paid. For example, if you pay your orthodontist $3,000 in the current year by placing that charge on your credit card, it is considered paid, even though the credit card amount has not been paid off. Itemized deductions are reported on Schedule A.