First, I need to explain that I've already heard the definition of a tax deduction- "A reduction of total income before the amount of income tax payable is calculated." (So please don't reply with just a simple definition) What I need to know is how that affects my return. I've asked a lot of people and no one can give me a clear answer. I have student loans out and I need to know how (and how much) it would benefit me to claim a deduction based on the interest I paid on them last year. Will the deductions increase the amount of my return or are deductions only necessary if I think I will owe the IRS money? I'm really confused to please answer in simple layman's terms. Pleaaaaaaaaaase, for my sanity- only answer if you really know what you're talking about! Thanks :)
2007-03-09 04:50:07 · 10 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Okay, let's see if I can answer this concisely.
Yes, a deduction "reduces total income." Let's say you made $30,000 but you paid $5,000 in deductible interest.
That means that of your pay, only 25,000 should have been taxable, and teh amount you paid for the income above that is returned to you.
However, its not super straight forward. There is something called the "standard deduction" which is sort of an "automatic" deduction that everyone gets. The more dependants you have, the higher the deduction. You only want to "itemize" your deudctions (IE, claim the interest) if your interest is HIGHER than the standard deduction.
Try going on www.turbotax.com. It takes maybe a half hour and you can input everything one at a time. The cool thing is that if you input anything that increases your refund, you see this little ticker up on the top left hand side that shows you the change. So you'll know instantly if itemizing the deducitons are worth your while.
If you WOULD have owed the IRS, the deduction can reduce the amount. If you're supposed to get a return, the deduction can INCREASE the return.
2007-03-09 04:58:00 · answer #1 · answered by Anonymous · 1⤊ 2⤋
Take the deductions always if they will reduce the amount of taxes you owe, or increase the amount of your refund. Everyone gets a standard deduction, but some people have other expenses and things that can be used as additional deductions such as real estate taxes, Student tuition credits, or business expenses. Those people will have more in itemized (listed) deductions than the standard deduction allowed by the IRS. If you are unsure, you need to do your taxes both ways, one using the standard deduction, and one using the itemized deductions, and see which method affords you the best refund or lowest tax debt. Everyones situation is different so do not seek specific examples no one can honestly give them.
2007-03-09 05:04:20 · answer #2 · answered by Dave 5 · 2⤊ 0⤋
There are two ways to deduct from your taxes. You either A) take the cookie-cutter standard deduction amount, or B) Itemize your deductions. You should always begin by itemizing your deductions every year, and then compare that deduction amount to the standard deduction amount. If your itemized deductions are greater than the standard deduction, then your submit an itemized return. This allows you to keep yourself educated upon what are valid deductions, which helps you keep your eyes open for tax saving opportunities throughout the year!
However, you can also save a little extra money from your taxes this year like I did. I found a site that paid for all of my filing fees this year through H&R Block. I went through their steps, took me about 30 minutes, and found out at the end that they would have paid for up to $500 of my taxes this year if I had owed the IRS instead of getting a return! Check them out and find out how much they can save you this year.
Jason
2007-03-14 15:21:44 · answer #3 · answered by Jason C 2 · 0⤊ 1⤋
I just spent LOTS of time on the telephone to the billing office of a surgeon/phys therapy office....it was WELL worth the call. I spent a large amount of $ with them.....all of which I can deduct...(out of pocket,only,of course.) I can also deduct the parking fees and mileage I incurred.
I also found out,coincidentally, that they owed ME some $. Would never have known if I hadn't inquired about my payments to them. Scarey,huh?! And this was only after I had spoken to three different people on the tax matters!!
All of my deductions can help offset my income. It is a VERY good thing for me to do. I had a boyfriend,a few yrs ago, amend some past taxes because my acct. failed to record my exps.!!!! ( He never even asked!) Anyway, I received a nice check in the mail!!
2007-03-09 08:13:01 · answer #4 · answered by I am Sunshine 6 · 0⤊ 0⤋
Deductions lessen any tax you owe. The "standard" deduction for a single person this year is $5150. If your deductions for interest paid is greater than $5150, you should itemize. Also, if you own a home, it is almost ALWAYS wise to itemize because the interest you pay on a mortgage will usually be far greater than the standard deduction.
2007-03-09 05:01:43 · answer #5 · answered by Tweet 5 · 1⤊ 0⤋
Well, its a mess thats for sure. You have to have so much in deductions in order to even claim them. Take your paper work to a good tax consultant and see what they say. I never seem to have quit enough to get the deductions. And they change the laws every year.
2007-03-16 18:50:38 · answer #6 · answered by carpentershammerer 6 · 0⤊ 0⤋
I suspect that you would be much better off filing a return if you were a college student and qualify for any education credits.
The IRS operates Volunteer Income Tax Assistance (VITA) offices across the US. These are free tax preparation offices staffed by volunteers who are trained and supervised by the IRS. I would suggest you take your tax information to one of these locations. You can find their locations and hours of operation by calling your local IRS office.
2007-03-09 07:27:16 · answer #7 · answered by RAG 2 · 0⤊ 0⤋
Deductions reduce the amount of your taxable income. which lowers your tax liability, which then can increase the amount of your refund
If you meet the qualifications to claim the Tuition and Fees deduction, make sure to claim it as it also reduces your taxable income
Publication 970
http://www.irs.gov/publications/p970/ch06.html
2007-03-09 04:57:47 · answer #8 · answered by Rob 7 · 2⤊ 0⤋
The main driver behind whether you take the itemized decduction or the standard deduction is if you own a home or not. House interest is the #1 itemized tax deduction.
Truthfully if you are asking this question you should be looking for a professional to do your taxes.
2007-03-09 04:53:51 · answer #9 · answered by sapugh 1 · 0⤊ 4⤋
check out this site!
2007-03-10 05:22:33 · answer #10 · answered by Anonymous · 0⤊ 0⤋