New standard deduction reduces the need to itemize

When you prepare your 2009 tax return, you may find that what had been a simple decision is now more challenging. Should you take the standard deduction or itemize deductible expenses such as mortgage interest, state and local income taxes, property taxes, and charitable contributions on Schedule A of your federal income tax return?

In the past, you'd decide by adding up your allowable itemized deductions and take them if the total exceeded the standard deduction for the year. Why is 2009 different? For one, the standard deduction is substantial: $11,400 for married couples filing a joint return; $5,700 for singles and married individuals filing separately; and $8,350 for heads of household. Moreover, if you're over 65 and single, you can add $1,400 to your standard deduction, or $1,100 for you and your spouse if you're married filing jointly. So a married couple, both over 65, can get a total standard deduction of $13,600: $11,400 plus $1,100 for each spouse. Blind taxpayers get an additional $1,400 (single) or $1,100 (married), and if they're over 65 they can take both deductions.

Add in the extras

What's more, if you take the standard deduction for 2009, you might also be able to take other write-offs that are usually available only if you itemize:

Property tax

Single homeowners can deduct up to $500 of property tax paid in 2009, in addition to their standard deduction. Married couples can deduct up to $1,000. (Itemizers generally can deduct all the property tax paid.)

Vehicle sales tax

Last year's economic stimulus law allows you to deduct the state and local sales and excise taxes paid on a new car, light truck, motor home, or motorcycle bought between Feb. 17 and Dec. 31, 2009, up to a purchase price of $49,500. This deduction is available to taxpayers with 2009 incomes of up to $125,000 ($250,000 on a joint return); partial deductions are available for those with slightly higher incomes.

If you itemize you can choose to deduct either state and local income taxes or sales taxes on your purchases. You can also take the full amount of any property tax paid in 2009 and miscellaneous deductions that exceed 2 percent of your adjusted gross income. And if you qualify for the special vehicle sales tax deduction, you can take that, too. If you deduct sales taxes, you can write off all the sales tax you paid on a new or used vehicle regardless of your 2009 income. "The sales tax on a major purchase such as a new vehicle can be added to the amount you're allowed to deduct for sales tax, which you'll find on the IRS table that comes with the instructions for Form 1040," says Gloria Birnkrant, CPA, a partner at NSBN, an accounting firm in Beverly Hills, Calif.

Assessing the AMT

Of course, the alternative minimum tax adds a further complication. You get no standard deduction when computing the AMT, nor can you write off state and local income, property, and sales taxes or miscellaneous itemized deductions. However, the special sales tax deduction for new vehicles can be deducted from your income for AMT calculations if you take the standard deduction for the regular tax.

The bottom line? Run the numbers both ways, Birnkrant says. Calculate how much you can deduct from your income by itemizing all your deductions. Then calculate how much you can deduct by taking the standard deduction plus property tax (capped at $500 or $1,000) and any qualifying vehicle sales tax. Choose the method that cuts your tax bill the most, taking the AMT into consideration.

This article appeared in Consumer Reports Money Adviser.