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Standard deduction will be higher for many taxpayers

By Humberto Cruz, Tribune Media Services, Source: Your Money Kiplinger

American taxpayers, if you believe in stereotypes, are scurrying around this time of year, rummaging shoeboxes for receipts and other paperwork to support itemized tax-deduction claims.

In reality, most taxpayers, including me, don't bother itemizing deductions, which must be reported on a tax form called "Schedule A" and require proof in case of an audit. We don't bother because the basic standard deduction, which is free for the taking, is higher than all the itemized deductions most of us can legitimately claim. The basic standard deduction requires no documentation and is entered on the main 1040 tax form.

For 2009 returns, thanks to what Congress enacted as temporary measures, the standard deduction will be even higher for many Americans who meet qualifications. The higher the standard deduction is, the lower the taxable income and tax bill are.

The downside is increased complexity, including a new tax form to fill out called Schedule L.

"The standard deduction isn't so standard anymore," said Mark Luscombe, principal federal tax analyst for tax publisher CCH, a Wolters Kluwer business. "For some people, filling out this schedule will probably entail as much figuring as taking a few itemized deductions on Schedule A."

For a little bit of work, though, the tax savings can be significant.

For the 2009 tax year, the basic standard deduction is $5,700 for singles and $11,400 for joint filers. Blind people and those 65 years old or older as of Jan. 1, 2010, can claim an additional $1,100 standard deduction for 2009. (Therefore, a couple filing jointly, both 65 or older and blind, would take an additional $4,400 deduction). Higher deductions for seniors and the blind have been part of the tax code for years and are not likely to be discontinued, Luscombe said.

In addition, in what are supposed to be temporary measures to boost housing and the economy:

-- Non-itemizers can claim an additional standard deduction for state and local property taxes paid in 2009, up to $500 for single taxpayers and $1,000 for joint filers.

This extra deduction, first available for 2008 returns and later extended for 2009, was part of a legislative package aimed at boosting a sagging real estate market. "Much of the package rewarded people for buying homes," Luscombe said, and the extra deduction benefits people who have no mortgage or don't pay enough interest on it to be able to itemize. The deduction expired at the end of 2009 but is likely to be extended to 2010, Luscombe believes.

-- Another provision effective since 2008 allows taxpayers who have experienced casualty losses in areas the U.S. president has declared disaster areas to take those losses as an additional standard deduction.

"This is especially valuable to people who may experience a few thousand dollars in losses that they can ill afford, but whose losses are not large enough" to itemize (because the basic standard deduction would be larger), Luscombe said.

This deduction is not available to taxpayers in the Midwest Disaster Area of 2008, for whom different rules apply.

-- Subject to income limits, non-itemizers who bought a new car in 2009 on or after Feb. 17 can add to their standard deduction the state and local sales and excise taxes they paid for the vehicle. Eligibility for this tax break phases out for single filers with modified adjusted gross income between $125,000 and $135,000 (joint filers, $250,000 to $260,000), and the deduction is limited to taxes paid on up to $49,500 of the purchase price.