Help!! Standard Deduction or Itemized Deduction?

Question

My husband and I married in Nov 06'. We purchased a $125,000 home in June 06' (mortgaged $100,000) and did extensive renovations (approx. $15,000 worth, new floors, roof, cabinets/countertops, bathtub, etc.) I am pregnant with our first child. Our combined income is approximately $25,000.

*Should we file married, filing jointly? or married, filing seperately?
*Should we take the standard deduction or itemized deduction?
*Is there a tax credit for buying a home, doing renovations and getting married?
*About how much is it to hire someone to do our taxes?

We have no clue what we are doing, any help would be appreciated.

Answer 1

Take a deep breath. It is really not that complicated.

First. Married Filing Jointly(MFJ) is almost always better than Married Filing Separately(MFS). There are many credits and deductions that aren't available for MFS. Not to mention MFS raises a red flag to IRS for an audit (because usually one spouse who do not want to be potentially liable for another spouse's business transactions would file separately).

Costs for renovating your home are not tax deductible. The renovation adds to the base (value) of the home. You bought the home for $125,000 and spent $15,000 to make it nicer, the new base for the home is $140,000. When you sell your home, for example, $200,000, in a few years, you will pay a capital gain tax for $60,000 (difference between $200k to $140k) rather than ($200k and original cost of $125k). (if) Loss would also be determined based on the new $140,000 value.

Make sure you keep good records (receipts) for this and future renovations.

In order to decide whether standard deduction or itemized deduction is better for you, we will need to add up all your itemized deductions. The standard deduction for MFJ is $10,300. So if the sum of your mortgage interests, points you paid for financing your home, real estate tax, property tax, state income tax etc are greater than $10300, then you should itemize.

Tax payers who wish to itemized their deduction would need to fill out Schedule A. Therefore you can see the list of eligible itemized deductions and their requirements on the instruction sheet of Schedule A (from IRS web site: http://www.irs.gov/instructions/i1040sa/ar01.html

The cost of hiring someone to do your taxes varies a lot. A store front tax preparer like H&R Block would be around $150. Make sure you print out a coupon from their web site before going to their office.

Best wishes.

Answer 2

File Married, Filing Jointly, it will give you the best tax rate and deductions. Generally, buying a house is the breaking point where it makes sense to itemize your deductions. The mortgage company will send you a form stating how much you paid in interest in 2006. If you have a second loan, you should get two. 100% of the mortgage interest you paid is deductible. You cannot deduct the improvements you made, but keep your records; when and if you sell they will help you to reflect your additional investment in the house and reduce your Capital Gains burden.

Since you're itemizing, take a good look at every line item deduction offered. You can deduct vehicle fees, charitable contributions, work expenses, all kinds of things.

Since you're so new, hire someone, it shouldn't be more than $300 and they'll save you that in catching deductions you might have missed.

Happy filing!!

Answer 3

Have you or your husband ever done your own taxes before? Your situation doesn't seem particularly complex - you don't have incentive stock options, or managed rental property, or had your own business.

I've used TurboTax for ten years now. (I am not employed by Intuit).

If you have to pay real estate taxes in your state, plus your mortgage interest, you are likely to have spent more than 10,000 for the standard deduction.

You can deduct either the sales taxes you paid, or your state income tax. This is really neat if you live in Texas, with no state income tax. Check all the receipts you for all the construction materials you purchased.

Married filing jointly is generally OK. Going separately is possibly better if each of you made the same amount of money last year.

Go to the IRS web site and download the 1040A form and instructions. http://www.irs.gov

Answer 4

If your itemized deductions are more than your standard deduction, then itemize. If not, take the standard deduction. The only ones who don't get to choose are married couples filing separately. If either itemized, BOTH must itemize, even if it means taking a $0 deduction for the other spouse.

Answer 5

First; file married filing jointly. Work the return both ways, itemized and standard to see what is the better return. You could hire someone to do your taxes, but the IRS offers a program called VITA where folks with incomes under $40,000 can get their taxes done by volunteers for free. The program is directed toward senior citizens, but non-seniors can use it as well. Go to www.irs.gov, or www.aarp.org to find a location near you.

Answer 6

Married filing joint and itemize if you have enough deductions otherwise take the standard deduction.

There are no credits for the home improvements or for marriage.

Getting help with your return makes sense especially as you are trying to learn about taxes. I would expect your return to be between $100 and $200, depending on who you go to.

You should consider using tax prep software as well.

Answer 7

go to irs.gov .......