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Understanding Tax Deductions

It is important that you understand tax deductions before you file your tax returns. Deductions are of two kinds, standard and itemized.

Let us have a look for at the concepts involved in standard deductions:
1. Claiming Standard Deduction
This can be claimed without regard to actual expenditure. This reduces your taxable income and hence reduces the tax you have to pay. You should avail standard deduction when it exceeds your itemized deductions. Standard deduction is revised every year based on inflation.
2. Family Issues
The amount of deduction varies based on whether you are single, or married or the head of the household. Also the deductions are different if you are filing returns alone or with your spouse.
3. Support for the Aged and Blind
If you are over 65 or if a person is blind, the standard deduction provided is higher.
4. Dependants
Dependants have specific rules it comes to calculating standard deductions. These compare the basic deduction to a fixed amount or to the income.

Let us now understand itemized deductions:
1. You must itemize your deductions if the amount of itemized deductions is higher than standard deductions.
2. When your spouse has itemized the deductions you need to do so as well.
3. You can determine when to pay your bills or make expenses to influence the time period of your itemization decision.
4. The amounts usually itemized include charity, medical expenses and certain taxes.

With the help of this basic information you should find it easier to understand tax deductions.

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