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Tax Tip of the Week
For the week of
September 29, 2003

Don't ignore deductions, or you might overpay your taxes

Did you itemize your deductions on last year's tax return? Most taxpayers didn't. In recent years about 70% of filers have chosen the standard deduction instead of itemizing their state and local taxes, mortgage interest, charitable contributions, and other eligible deductions. But that could be a costly mistake. Last year, a Congressional study found that approximately one million people overpaid their taxes because they took the standard deduction rather than itemizing their deductions.

Nobody knows why so many taxpayers choose not to itemize. Perhaps they consider it too much trouble to keep the necessary records to identify and substantiate deductions. Whatever the reason, if you claim the standard deduction without analyzing whether itemizing would be better, it's time you checked your deductions to see if you're paying more tax than necessary.

Start by looking at the big deductible items – mortgage interest, state and local income taxes, and property taxes. You should be able to easily find these numbers on year-end reports you receive. Add up your charitable contributions and any out of pocket expenses connected with volunteer work you did for charitable organizations. Medical expenses for which you're not reimbursed by insurance are deductible if they exceed 7½% of your adjusted gross income. Some job-related, investment, and miscellaneous expenses are also deductible.

Take some time now to identify all the deductions you'll be entitled to for 2003, and be sure your recordkeeping system is adequate to track them. Don't just assume that the standard deduction is right for you, because it may not be. Keep track of your deductions so that you can itemize on your 2003 tax return if doing so will save you tax dollars.

Prior Tax TipsClick here to view previous tax tips.

"Tax Tips" are published weekly to provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders, and current tax information.

The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

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