Questions for the Tax Lady: May 10th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: How much money do you need to make to benefit from itemizing your return?

There actually is no income range that will determine whether you would benefit more from claiming the standard deduction or itemizing your return. It all depends on how many deductions you qualify for. Add up the dollar amount of all the deductions in which you would qualify and if the total is higher than the standard deduction, you should itemize your return. If it is lower, then you should claim the standard deduction.

Question #2: I am in the process of filing bankruptcy. Will I need to include the resulting canceled debts on my tax return next year?

No. A taxpayer will not need to include debt canceled by bankruptcy if the cancellation of debt is granted by the court or occurs as a result of a plan approved by the court. None of the debt canceled in a bankruptcy case is included in the debtor’s gross income in the year it was canceled.

Want a Bigger Tax Refund? Don’t Itemize

Although itemizing can lead to a huge refund for some taxpayers, there are many others who benefit more from taking the standard deduction. If you think you may be one of those taxpayers that will get more for their buck by simply taking the standard deduction, read this Forbes.com article.

Year after year taxpayers spend hours hunting down and organizing all their receipts and canceled checks for totally legitimate deductions--gifts to charity, medical expenses, unreimbursed business expenses and so on. Then they're told by their tax professionals, (or discover while using software such as Intuit's TurboTax or H&R Block's At Home) that all their conscientious record keeping is for naught. Those itemized deductions won't be showing up on their tax returns, because they'll get a bigger refund by claiming the "standard deduction."

Often people are left feeling a little cheated and confused by the process. So it helps to understand why you may be better off not itemizing, particularly this year. Here are six reasons:

1. The standard deduction isn't so small or so standard.

The standard deduction is an amount assigned to each filing status. The base amount for 2009 is $5,700 for a single filer and double that--$11,400--for a married couple filing jointly. A head of household (a single parent with kids, for example) gets a standard deduction of $8,350. There are additions to these standard amounts for those who are blind or over age 65.

Continue reading at Forbes.com…

Deciding Whether or Not To Itemize

Each year during tax season there is one decision every taxpayer has to make, whether or not to itemize deductions on your tax return. Deciding to itemize depends mostly on how much you spent on certain deductible expenses last year including medical expenses, mortgage interest, state and local taxes, charitable contributions, etc. You should itemize if the amount you spent on those expenses is higher than the standard deduction amount according to the IRS. For more help deciding if you should itemize or not check out this article.