Types of Personal Deductions

• There are two types of personal deductions: standard deductions and itemized deductions. Standard deductions are set amounts that every taxpayer is entitled to take. The individual standard exemption applies to everyone, regardless of status or age. For 2010, that amount is $3,650. You take this for everyone in your family, whether you take itemized deductions or not. You can then choose to take the additional standard deduction. The amounts vary each year, but the categories do not. The categories are single, married (filing jointly), married (filing separately), head of household and qualifying widow(er) with dependent child.
  
  

Itemized Deductions

• Some choose to use itemized deductions instead of their standard deduction. This is the best choice when the itemized deductions add up to more than the standard deduction. Itemized deductions are amounts of money you spend on particular items that you can then deduct from your taxable income. If your itemized deductions do not add up to more than the standard deduction for your category, you are better off taking the standard deduction.
  
  

Common Itemized Deductions

• Some of the most common itemized deductions are mortgage-related expenses such as mortgage interest, mortgage insurance and real estate taxes. State taxes and sales taxes are another common deduction. Medical expenses in excess of 7.5 percent of your adjusted gross income are tax deductible, including health insurance deductibles, qualified Health Savings Account (HSA) contributions, health-related expenses, medical equipment and medications. Student loan interest, other educational expenses, charitable contributions, child and dependent care, job expenses and home offices are also common personal deductions.
  
  

Documentation

• For those that choose to take the itemized deductions, it is necessary to save and set aside any paperwork, forms and receipts that document the amount of the deductions. All deductions must have documentation you can present upon request to the Internal Revenue Service (IRS) to substantiate the deduction. If the IRS audits you and find you have taken unsubstantiated itemized deductions, you will have to repay any shortfall along with penalties and interest.