Itemize or Standard Deduction? It's a Complicated Decision for 2009.

Most taxpayers have annually had the option to itemize their deductions or take a standard deduction, and the rationale for making the choice has always been rather simple: take the higher of the two amounts.  However, for 2009, the choice can be complicated, and, in some cases, requires advanced planning to maximize the tax benefits of that choice.

The complications have been brought about by the ability, in 2009, to add real property taxes, new vehicle sales and excise taxes, and disaster casualty losses to the standard deduction, creating a hybrid deduction that is part standard and part itemized.  Consequently, the decision becomes more difficult, especially when deciding whether to buy a new car this year or not; pay all the property taxes or only the first installment this year; and exercise the option to take a 2009 disaster loss in the current year or the preceding year.

Some taxpayers who only marginally itemize each year have adopted the strategy of “bunching” deductions in one year and then claiming the standard deduction in the alternate year.  This technique is applied to tax payments, charitable contributions, some medical expenses and to certain business expenses.  Those employing this technique may need to reevaluate their strategy for 2009, take the hybrid standard deduction, and defer the other deductible payments into 2010.

When making the analysis, keep in mind: (1) the property tax add-on to the standard deduction is limited to $500 for single taxpayers and $1,000 for married taxpayers filing jointly, and (2) the vehicle tax is only allowed for the sales or excise tax paid on the first $49,500 of the purchase price for each new vehicle bought after February 16, 2009 and through the end of the year, and it begins to phase-out for single taxpayers with an AGI above $125,000 ($250,000 for married taxpayers).

If you marginally itemize your deductions, it may be appropriate for you to schedule a consultation with this office prior to the holidays, and defer tax-deductible payments and buying a car until after a strategy has been determined for your particular circumstances.

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