While the U.S. tax code is rife with loopholes, few people take advantage of them. Only about a third of taxpayers itemize their deductions, according to the federal Internal Revenue Service. In 2010, less than 30 percent of those making between $30,000 and $50,000 itemized deductions, according to an analysis by CNN. Meanwhile, 96.8% of those making $250,000-plus itemized.
“Sometimes people get in a rush – they just want to finish and file their taxes,” says Lisa Greene-Lewis, a certified public accountant and blog editor at TurboTax, the tax software company.
So, to simplify things and speed the process, many taxpayers just take the standard deduction – $5,950 for a single taxpayer; $11,900 for a married couple filing jointly. But the average amount of deductions for those who did itemize was more than $25,000, according to an analysis by CCH, a provider of tax, accounting and audit information, software and services for professionals in accounting firms and corporations.
The amount of deductions you claim can substantially lower your tax bill. For example, itemized deductions totaling $10,000 reduce taxes for a person in the 15 percent bracket by $1,500 – enough for a big screen HDTV. Additional deductions of $10,000 would cut taxes by $3,500 for a person in the 35 percent bracket.
Coming up with itemized deductions that will add up to more than the standard deduction is easier than you might think. There are about 350 deductions available, says Greene-Lewis. The biggest for most people is the mortgage interest deduction. The average mortgage interest deduction for households with an adjusted gross income of $50,000 to $100,000 was more than $10,000.
This is a no-brainer. Spend $40-$50 on tax preparation software such as TurboTax – and there are others from which to chose – and an hour at the computer to figure out if your possible itemized deductions add up to more than the standard deduction.
Pay your fair share, but don’t pay more than that.