The Benefit of Deductions in Filing Taxes

Lower taxes is the biggest benefit of tax deductions.

The deductions taken when filing taxes will lower your tax obligation. Every dollar in tax deductions reduces your tax obligation based on your income bracket's taxable income percentage. Tax deductions apply to individual taxpayers and businesses that pay taxes.

Basics

You have two options for deductions when filing taxes as an individual. You can take standard deductions, which were $5,700 (Single or Married Filing Separately), $11,400 (Married Filing Jointly or Qualifying Widow(er)), or $8,350 (Head of Household) in 2009, according to Money-Zine. Alternatively, you can elect to itemize deductions.

Itemized Deductions

Common categories for individually itemized income tax deductions are medical and dental expenses, taxes paid, interest paid, charitable contributions, job expenses, and a wide array of miscellaneous expenses. Common business deductions relate to asset depreciation and various employee- and business-related expenses.

Financial Impact

Some people consider the effect of tax deductions when buying homes (property and interest deductions) and making charitable contributions, things they would likely do anyway. Other deductions tied to necessary expenses are a way to lighten the burden on taxpayers. Tax deductions, which amount to a percentage (e.g. 28 percent if you are in the 28-percent income bracket) of your expenses, do not have the same tax benefit as "tax credits," which are equivalent to dollars paid on your tax obligation.

References

• Money-Zine: Tax Deductions
• All Law: The Tax Benefits of Home Ownership