Tax season can be frustrating for many Americans, particularly those who may end up owing money to the IRS. Fortunately, there are tax laws in place to provide a wide variety of deductions. When a taxpayer claims a deduction, he subtracts the amount spent on an item, service or financial obligation from his taxable income. Understanding some common deduction laws will help taxpayers lower their IRS bills and avoid complications.
Standard Versus Itemized Deductions
Each year the IRS offers a standard deduction for taxpayers but only in the cases of those who do not wish to claim itemized deductions such as business expenses related to car or home use. The amount of this deduction changes based on inflation and a taxpayer's filing status. For example, for the 2010 tax year the standard deduction was $5,700 for a single filer or $11,400 for those filing jointly For people 65 or older by the end of the tax year, the IRS grants a higher standard deduction.
Car and Truck Expense Deduction
Automobile expenses for business use are one of the most common and popular types of itemized deductions for taxpayers. However, there are strict guidelines to consider. The use must first be considered ordinary and necessary to a taxpayer's business and any costs from personal use are not deductible. Standard commutes from home to a primary workplace are not deductible, but driving to and from other business-related locations is deductible. To deduct these expenses, the taxpayer can calculate either the actual amount spent or use the standard mileage rate, which was 50 cents per mile for the 2010 tax year.
When a taxpayer donates money, goods or property to a charitable organization she can also deduct this from her income tax obligation. The taxpayer must keep a record of the contribution made, including the date and amount given. In the case of donated property, the fair market value will determine the amount of the deduction. However, if an organization rewards a donor with prizes or services, the donor must subtract the value of the reward from the amount of the contribution.
Other Taxes Paid
Taxes themselves can also be tax deductible in some cases. If a taxpayer pays a state or local tax during the year, he can then deduct this amount from his federal income tax responsibility. Americans can even deduct the amount paid for state and local taxes from previous years if these dues were paid during the tax year being filed.
- Internal Revenue Service; Topic 503 - Deductible Taxes; Feb 2011
- Internal Revenue Service; Standard Mileage Rates; July 2011
- Internal Revenue Service; Car and Truck Expense Deduction Reminders; November 2007
- Internal Revenue Service: Topic 506 - Charitable Contributions; February 2011
- Internal Revenue Service; Standard Deduction; 2010
- Internal Revenue Service: Topic 551 - Standard Deduction; March 2011
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