A reader asks: At what income level does it start to make sense to itemize deductions on your tax return? For 2010, even high-income taxpayers who typically take the standard deduction may want to consider itemizing.
Q: At what income level does it start to make sense to itemize deductions on your tax return?A: Whether or not you itemize tax deductions on Schedule A depends on whether your deductions total more than the standard deduction. For the 2010 tax year, the standard deduction is $11,400 for married couples, $5,700 for singles or married couples filing separately, or $8,400 if you file s head of household. (There’s an additional $1,100 deduction for those 65 or older, or for taxpayers who are blind.)
By itemizing, taxpayers can reduce their taxable income by subtracting such things as medical expenditures, state and local taxes, mortgage interest, property taxes, charitable contributions, job-seeking costs, and a slew of other expenses.
For 2010, wealthy taxpayers who typically take the standard deduction may want to consider itemizing. In typical tax years, high-income taxpayers who choose to itemize deductions don’t get the full tax break that lower-income filers do because there are income limits on the amount of itemized deductions that can be used to lower taxable income — a rule known in tax lingo as “Pease.”
Generally, itemized deductions begin to phase out for incomes of roughly $169,000 for married couples, and $85,000 for singles. It has been estimated that Pease, so named for Representative Donald Pease (D., Ohio) who pushed for the rule in 1990, wipes out up to 80% of the value of high-income taxpayers' itemized deductions.
But for tax years 2010 through 2012, there is no limit on itemized deductions, regardless of your income level. Note, however, that one popular deduction is not included in this exemption: Charitable deductions still can’t exceed 50% of your adjusted gross income, though you can carry over excess donation amounts to future tax years.
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