The Federal Tax Itemized Deductions Disadvantage
What is the federal tax itemized deductions disadvantage?
Itemizing deductions is the least preferred method of tax deductions. Here are some examples of how the IRS makes it quite difficult to enjoy this deduction.
- Everybody is entitled to a personal tax deduction on their tax return either standard or itemized, but not both. Therefore it only pays to itemize deductions if the total itemized deductions are more than the standard deduction.
The first dollars of the expenses that you itemize is not really counted because you can anyway get it with the standard deduction.
When you are itemizing you are effectively giving up your standard deduction.
So if you’re married filing jointly and your federal tax itemized deductions add up to $20,000- you are really getting less than $8000- because the first $12,400- you would have gotten anyway with the standard deduction.
- Another drawback is that some of the expenses that you will try to deduct are limited. For example 10% of your income needs to be spent for medical expenses before you can begin deducting the remainder of your medical expenses. This strongly limits the amount of your itemized deductions.
- Also the deductions claimed as federal tax itemized deductions only reduce your income tax unlike expenses deducted as business expenses which also reduces your self-employed tax.
Please note: Some people must itemize even if they don't want to. For example if your spouse itemizes on a separate return or you were a dual-status alien.
So should you itemize or not?
You should definitely itemize your deductions if you can, but it usually pays to look out if you can deduct the same deduction elsewhere especially if you are also self-employed.
Here are some examples:
Updated January 27, 2015
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