Should I itemize on my taxes?

One of the most frequent questions I get from the folks who come to me to have their taxes done is "Should I itemize?" A lot of these clients don't even know what the question means, but they ask anyway. And the answer I always give is that we will look at their situation and determine the best answer, because the answer is different for everyone.

To explain what it means, the IRS gives everyone a standard deduction. You can choose to take the standard deduction or itemize. Typically, you will choose which ever gives you the best tax break (while it sounds silly, there is at least one good reason not to choose the best, but I'll ignore that for now). This deduction is the amount of your income that is not taxable. Supposed you're single and make $50,000 a year income. You won't have to pay taxes on the entire income, the first $5700 is not taxable.


The standard deduction as mentioned about is $5700 for single people or for married people who file separately. For married people who file together, the deduction is exactly twice the single deduction or $11,400. There is another class of people, Head of Household and their deduction is $8400. I won't go over those choices in this blog post, I'll assume you know which filing status you fall into.

In order to decide on itemizing, you can simply look at your items and see the total. If they total more than the standard, you're better off itemizing. So what items are significant? My experience is that home mortgage interest is typically the larges. If your home is mortgaged, you should get a from from your bank that tells how much interest you paid.

People of faith also tend to have charitable contributions. And of course we all pay state taxes, you can choose to deduct your state income tax or state sales tax. Don't forget real estate taxes and property taxes on your automobiles. If the total of all of these items exceeds the standard, by all means itemize.

There are two other areas that are common: Medical expenses and miscellaneous deductions. Each of these is subject to some minimums. For example, medical expenses that exceed 7.5% of your income are deductible. For the person listed above making $50,000, that's $3750. If your expenses are less than that or are covered by insurance, you can't deduct them. If your expenses are higher, you can only deduct the difference. For example, if your expenses are $5000, you can only deduct $1250.

For miscellaneous expenses (job travel, union dues, etc), these have to exceed 2% of your income.

I purposely omitted Casualty and Theft losses as they aren't that common. By all means you should study the law yourself and not take my comments as always true. But hopefully, this will help you decide if you want to itemize.

VITA/TCE Certified

Ok, my long term readers are probably thinking, hey, I've read this post before. True, last year about this same time I did post an article with this same title (see here). They may remember that I volunteered (that's the "V") to provide Income Tax Assistance to low-middle income people as well as Tax Care for the Elderly (see how I snuck the acronym in there?). I reported last year (here) that I did taxes for about 100 people.

Well, I'm back at it this year. I passed the basic exam one day earlier this year (simple coincidence) and have decided to step up a notch and took the intermediate exam. I passed that one too, so I will be allowed to do slightly more complicated exams this year. We start doing taxes on January 30 and continue until that magic day in April (which my family knows the reason for the magic). I will do taxes on Friday and Saturday afternoons (assuming I get the slots I requested).

This year there are a few changes. There's a new $400 ($800 for joint taxpayers) credit called Making Work Pay. It requires a new form, but it's relatively simple. (Special note to my son - you don't get it because you're my dependent.) And of course there's the first time home-buyers credit, but few of my expected clients are likely to qualify for that (likewise the follow-up home-buyers credit). I'm prepared just in case as I helped out one tax payer after the tax crush last year with their form 5405 and I'm expecting to help another in May of this year.

As usual, one of the most complicated forms is for Earned Income Credit. Sadly, the people who need the credit the most are the least likely to understand. I never even try to explain Advanced EIC. And I spent a lot of time this year trying to make sure I understand the tuition tax credits. Did you know there are FOUR different ways to claim tuition credits? And the law has changed (for the positive) on what you can claim. This credit helps those who are in school (or paying for someone in school). I think it's great because in theory, this will result in a future big income and support for me when I'm collecting Social inSecurity.

I did my own taxes on paper for a number of years. For most people, it's not that hard. You don't have to go to some store-front tax location (that will be gone after 4/15) and pay a few hundred dollars to get your taxes done. If they are that complicated, it's worth paying a REAL professional to have it done. If you need help, look for a VITA site near you (search on VITA on the IRS website). Avoid those Refund Anticipation Loans (see here for another reason to avoid them).

I'll report back here in April with a final comment.

OK, I confess, I'm a hypocrite

My faithful readers know that I'm a conservative. Lower taxes, less government interference. If someone suggests additional government help for the jobless, I'll tell 'em to go get a job.

But when it becomes personal, I change my tune. And by personal, I don't just mean when it affects me. I mean when it affects me or those around me. Friends, neighbors, etc on an individual basis.

I've helped some people do taxes in the past and I went out of my way to make sure they got every dollar they could, even if it meant getting more in a refund than they paid in the first place. Maybe I don't agree with the idea of them getting money back that they didn't pay in (I never did), but if they have a chance of helping themselves, I'm all for it.

Same goes for welfare. I hate the idea of it. I think it's wrong. But if someone I know is entitled to collect some, I'll help them any way I can.

So why the hypocrisy? Basically, it comes down to this: if they don't take the money, it's not going to change anything, only make them poorer. By taking the money, they may be able to change their lifestyle.

This year, I've signed up to help with VITA - Volunteer Income Tax Assistance. I start my formal training next week (I've been doing some online training already). In respect to my clients-to-be, I won't blog about the details of anything I'll be doing. If I find that I can sprinkle tidbits into my blog, I might, but first priority has to be to protect the dignity and privacy of the people.

Wish me luck.