Expanded Standard Deduction

Standard Deduction Expanded

Expanded Standard Deductions Puts More Money Back in Your Pockets

Saving on Taxes in the Long Run

President Obama is taking steps in helping the people he signed new laws on taxes and added new provisions so that people would pay less tax. One of the changes that he made is expanding the standard deduction. Started in 2009, people could save on expanded standard deduction as compared to itemized deduction. The expanded standard deduction covers property taxes, sales taxes and other discounts if the taxpayer is an elderly or blind.

There are instances when the itemized deduction appears to be higher than the expanded standard deduction. The taxpayer should compute using both the itemized deduction and the expanded standard deduction, see which among the two calculations work better for him and could save him some money. The difference might be small, but it’s still money worth saving.

To be able to see the difference between the amount that you are going to pay for the expanded standard deduction and the itemized deduction, you must compute the tax using two different calculations. The method for the computation is the same but the result would be different.

First, try comparing the total expanded standard deduction from the total itemized deduction then multiply the difference to your marginal bracket.

Second, compute your state income tax refund using the expanded standard deduction and make another computation using the itemized deduction. If you use the itemized deduction, the state refund this year would be the taxable income on next year’s federal tax. Multiply your state refund this year to your marginal federal bracket. The end result would be the additional tax that you are going to pay for the following year.

Lastly, net your federal tax savings by using itemized deductions and compare this from the state refund increase.

By comparing the different computations, you would be able to see which among the expanded standard deduction and the itemized deduction works best for you and enables you to pay lesser tax. You can also download Schedule L, which uses the expanded standard deduction and compare it to Schedule A, which uses the itemized deduction, you will see that Schedule A is longer than Schedule L but Schedule A might be better, depending on the situation, the sum of your deductions and your tax bracket.

You might have a bigger refund if you itemize all your deductions. But look at how much you are going to save if you do not include your state refund on the following year’s income tax return. Itemized deduction is a short term solution while the expanded standard deduction is a long term solution in paying lesser tax. If you use both the expanded standard deduction and the itemized deduction for the computation, and compute these taxes in a span of 5 years, you’ll see the difference between the two deductions. So take advantage of paying lesser tax and recognize the big savings that you are going to save. This is legal and you won’t get sued for it.

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Posted by tax assistant on Saturday, December 4th, 2010. Filed under Personal Tax Issues, Tax Deductions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry