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File Federal Taxes Online

Federal Income Tax Deduction

Sunday, December 17, 2006

The American laws are great fun to play with if you know how to handle them, but better be sure you know the rules, or else you fall into trouble.

The federal income tax deduction is a statutory requirement under the American laws. All American citizens who fall under this category have to pay this. Taxable income is calculated by removing (a) excluded income, (b) exemptions, and (c) permissible deductions from the individual's gross income.

The following are the heads under which you can avail the tax deduction:

1. Exemptions: Some common exclusion from gross incomes is:
I) Earnings made from life insurance contracts
ii) Earnings made from gifts and inheritances
iii) Proceeds granted for personal injuries
iv) Interest received from state and municipal bonds

certain conditions have to be kept in mind before availing these deductions.

2. Deductions: In addition to the standard deduction, some common "above-the-line" deductions include:
i) Trade/ Business expenses
ii) Alimony
iii) IRA contributions
iv) Net capital losses
v) Expenses incurred due to property used for income generation

income tax laws are not everybody's cup of tea and so should be handled with care.

3. The Standard Deduction: When individuals have minimal "below-the-line" deductions, they are directly granted a standard deduction. The standard deduction under different heads in 2004 was as follows:
i) Single $4,850
ii) Head of household $7,150
iii) Married filing a joint return $9,700
iv) Qualifying widow(er) with dependent child $9,500
v) Married filing a separate return $4,850

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