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Tax deductible is a term used to describe certain expenses that can be deducted from your income taxes at the end of the year. The deductions that you claim will affect which tax form you can use.
Types
Tax deductions are classified by the IRS as either above-the-line, which means that you can take them in addition to the standard deduction, or itemized, which means you must forgo the standard deduction. In order to claim itemized deductions, you need to file a Schedule A and use the Form 1040 for filing your taxes.
Time Frame
Tax deductions are usually taken when you paid for the expenses rather than when you benefit from the purchase. For example, if you paid for a surgery ahead of time in December of 2009 but didn't have the procedure until January of 2010, you would take the deduction for the 2009 tax year.
Itemized Deductions
You should only take the itemized deductions if their total exceeds the value of the standard deduction for your filing status. For example, if your standard deduction is $5,450 and your itemized deductions are only worth $4,000, you should not take the itemized deductions.
Qualifications
Many tax deductions are limited based on your income and your filing status. For example, to claim the deduction for higher education expenses, your modified adjusted gross income must be below the annual limit and you cannot claim the deduction if your filing status is "married filing separately."
Warning
You must keep accurate records to support any deductions that you take in case your tax return is audited. You should save any receipts from the expenses as well as writing down the purpose for the expense, date and amounts.
Source:
Tax Deductions: Above-the-Line, Standard, Itemized and Miscellaneous
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