Adjustments and itemized deductions in individual tax

Document Type:Research Paper

Subject Area:Accounting

Document 1

The purpose of this study is to educate taxpayers on how to calculate their taxable income by avoiding overpaying taxes. Most people do not deduct adjustments and itemized deductions hence ending up paying more tax than expected. These deductions are from expenses that the US government does not tax like medical expenses. This study will be a great contribution to the field of taxation since it is very detailed and enlightening. Introduction All income earning citizens in the United States are required to pay taxes and file their tax returns annually except in special cases like the physically challenged can be tax exempted. According to Infanti, the government uses the tax and other sources of revenue to run the country for instance to pay civil servants, offer security, and other public goods and services (2010).

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There are some people who are exempted when it comes to tax payment like the physically challenged. Every year there is a deadline for submitting tax returns and fines for those who fail to submit on time. In united states commonly, taxpayers must fill different forms named form 1040, form 1040A, or form 1040-EZ. In United States tax returns are calculated annually hence making the gross income to be all earnings of a taxpayer in a year. These expenses or in other word adjustments are very common, for instance, taxpayers below thirty years have student loans and the student loan interest is an example of an adjustment that should be deducted from their gross income. Not every citizen is employed hence for the self-employed citizens' expenses like health insurance can be classified as an adjustment.

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The following are examples of the most prominent adjustments in the United States of America; alimony payments, medical expenses, retirement plan contribution, unreimbursed business expenses, and moving expenses (Auerbach, & Holtz-Eakin, 2016). Taxpayers can remember that they are supposed to deduct all adjustments from the gross income when filing their tax returns but use the wrong form. The only form that can allow a taxpayer to subtract all possible adjustments is form 1040 hence making it the best form to use. Most American citizens claim their adjusted gross income but do not understand how it is used when it comes to filing tax returns. AGI amount of a taxpayer is first used to determine the type of itemized deductions a taxpayer can claim. For instance, some expenses are only considered when they reach a certain amount of the AGI, like medical expenses must be more than 7.

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5 percent meaning a lower amount will not be considered. AGI amount also limits a taxpayer’s claim to miscellaneous itemized deductions. One cannot also itemize deductions when he or she is filing tax returns for a duration less than one year. Itemizing deductions helps a taxpayer increase his or her tax savings, but it also requires a taxpayer to do some extra work of filling the Schedule A attachment and to maintain all expenses records (Benzarti, 2015). The following are the common expenses in the United States that a taxpayer can itemize; property taxes, sales taxes, gambling loses for those who get income from gambling, mortgage interest of only one to two homes, and charitable donations. Dental and medical expenses can be itemized but only when they exceed 7.

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5 percent of the adjusted gross income. Before choosing itemized deductions, one should know his or her standard deduction since one must give it up. After calculating both deductions and determining that itemized deductions are high than standard deductions then one can go ahead and choose to itemize. Lowry (2014) confirmed that a taxpayer must also have all receipts and documentation to prove itemized expenses hence only those expenses with documentation will be considered. Itemized deductions do not apply to taxpayers with high incomes. Modifying and eliminating tax deductions is a way of the United States government to discourage and encourage various forms of social behaviors, activities, or economic growth. After calculating the adjusted gross income, one should deduct all standard deductions or itemized deductions to get the total taxable income.

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