Link and Learn - Standard Deduction and Tax Computation

Question 1

What are deductions?

Answer 1

Deductions are subtractions from a taxpayer’s adjusted gross income (AGI). They reduce the amount of income that is taxed.
Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. When taxpayers have a choice, they should use the type of deduction that results in the lower tax.
Some taxpayers may need to use the standard deduction worksheet in the Form 1040 Instructions.
Use the interview techniques and tools discussed in earlier lessons to determine if the standard deduction will result in the largest possible deduction for the taxpayer.

Question 2

Itemized Deductions

Answer 2

In general, taxpayers benefit from itemizing deductions if they have mortgage interest, very large unreimbursed medical or dental expenses when compared to their income, or other large expenses such as charitable contributions. Itemized deductions will be covered in another lesson.

Question 3

Who cannot take the standard deduction?

Answer 3

Some taxpayers cannot take the standard deduction and must itemize. During the interview, find out if the taxpayer is:
Filing as Married Filing Separately and the spouse itemizes
A nonresident or dual-status alien during the year (and not married to a U.S. citizen or resident at the end of the year)

Question 4

Who qualifies as blind?

Answer 4

Taxpayers are entitled to a higher standard deduction if they are considered blind on the last day of the year and they do not itemize their deductions. A taxpayer who is not totally blind must have a certified statement from an eye doctor (ophthalmologist or optometrist) that:
The taxpayer cannot see better than 20/200 in the better eye with glasses or contact lenses, or
The field of vision is not more than 20 degrees
If the eye condition is not likely to improve beyond these limits, the statement should include that fact. Taxpayers should keep the statement in their records.

Question 5

Taxpayers Who Can Be Claimed as Dependents

Answer 5

The standard deduction is generally lower for an individual who can be claimed as a dependent on another person’s tax return. Taxpayers that can be claimed as a dependent must use the Standard Deduction for Dependents Worksheet to determine their standard deduction. The worksheet can be found in the Volunteer Resource Guide, Deductions tab.
All of the rules are included on the standard deduction worksheet for dependents.
During the interview, verify how the taxpayer marked the check box for a dependent being claimed by another taxpayer.

Question 6

Who should itemize?

Answer 6

As discussed previously, some taxpayers are required to itemize. Taxpayers should take the higher of the standard deduction or the itemized expenses deduction if they are not required to itemize.
In general, taxpayers benefit from itemizing their deductions if they have mortgage interest, qualified charitable contributions, or if unreimbursed medical/dental expenses are large compared to their income. During the interview, ask the taxpayer if any of the following were applicable during the tax year:
Large out-of-pocket medical and dental expenses
State and local income taxes, real estate taxes, and/or personal property taxes
Mortgage interest
Gifts to charity
Casualty, theft, and certain other miscellaneous deductions
If the taxpayer’s expenses qualify, itemizing may be a better choice.