April 7, 2008
It is better to have an adjustment deduction, because it will definitely
save you taxes. Itemized may or may not benefit you. (If standard
deduction is greater than itemized amount).
Effective cash savings/benefit may not exist with itemized deductions.
Most business and investment expenses are allowed, but itemized
deductions are usually subject to a constraint.
Medical expenses must exceed 7.5% of AGI
Casualty losses must excess 10% of AGI plus $100
Job costs/Employee costs are allowed when they exceed 2% of AGI
If you make $50,000, you must have employee/job costs in excess of
1000 (2% of AGI) to be able to take a deduction.
A for AGI deduction not only affects the bottom line, but it also affects
the fence that people must jump over (AGI limitations).
If AGI is reduced, the n the amount of AGI that needs to be exceeded
for medical expenses, casualty loss, etc. is less than it would have
been without an AGI reduction.
At the margin, a for AGI deduction allows more expenses to
exceed the AGI fence
AGI of $200,000
Medical Bills $15,000
$200,000 x 7.5% = $15,000 (You cannot claim a deduction)
But what if you had a $100 for AGI deduction that you forgot to add.
This lowers AGI by $100 to $199,900.
$199,900 x 7.5% = $14,992.50
$15,000-$14,992.50 = $7.50
Your bottom line is reduced by $100 + $7.50 = $107.50
Therefore, your taxable income is less by $107.50
Take adjustment deductions, itemized deductions, then exemptions.
Exemptions are equal to about $3,000 per person
Two types of Exemptions
For the taxpayer
- For the people you support
If you are single, you get 1 personal exemption. If you are MFJ, then
you get 2 personal exemptions.
You cannot claim an exemption if someone else is claiming you
as a dependent on their return
Parents would probably get a greater benefit if they claimed you rather
than you claiming yourself.
3000 x 30% = $900 tax savings, which is more than you would save in
your 10% or 20% bracket.