A federal tax deduction is a variable amount that you can subtract or deduct from your gross income. This can include itemized deductions which are eligible expenses that an individual taxpayer may report on their Federal income tax return. A federal tax deduction may also include a standard dollar amount that non-itemizers may subtract from their income.
This year the standard deductions are being increased by approximately 350 dollars.
A standard federal tax deduction is based upon the status of the person at the time of filing. The standard is based on age, marriage, head of household or dependent. Other status factors include widow/widower with dependent child, married filing separately. Seniors over 65 and seniors over 65 and blind usually have a standard deduction approximately slightly higher than the average standard deduction.
Itemized deductions are deductions applied toward the adjusted gross income from a list of allowable deductions. To be eligible for the four basic federal tax deductions a nonbusiness individual can apply, the tax must have been imposed and paid during the prior year.
The four basic types of deductible non-business taxes are 100 % deductable and these are listed as follows:
1. State, local and foreign income taxes
2. Real Estate taxes
3. Personal property taxes and
4. State and local sales taxes.
There are many sites which attempt to list the allowable deductions and the list can be very extensive. When planning to itemize it is always a good idea to keep all receipts. Some examples of allowable itemized deductions are: Charities, Interest Expenses, Medical Expenses, Auto licenses fees
In addition, this year there are many new tax credits and allowable deductions in light of the new administration. For example the new American Opportunity Tax Credit. This provides up to a 2,500 dollar tax deduction for people pursuing undergraduate degrees. The opportunity tax credit is replacing and expanding on the Hope credit and will be effective only during years of 2009 and 2010. Another change is the ending of the sales tax deduction. This is the final year of the sales tax deduction which was available only for the years 2005 through 2009.364 In order to keep this deduction there will need to be an act of congress extending this particular tax break.