Federal taxation and itemized deductions research

Itemized Deductions

The Federal Tax system that is managed by the Internal Revenue Service (IRS) contains many complicated rules and regulations that presents many problems and issue for taxpayers wishing to abide by these laws. Itemized deductions is one method of self-reporting that taxpayers choose to use to file their returns. The purpose of this essay is to examine the use of itemized deductions on federal income tax returns. This investigation seeks to understand the history of this application while also evaluating the complex nature of the qualities that determine the appropriateness of this selection. This essay will also examine the effectiveness of itemized deductions as part of the larger component of income tax returns. The essay will conclude by highlighting certain examples where IRS audits were started because of misuse of the itemized deduction.

History of the Itemized Deduction

According to the Internal Revenue Service's web site its history has roots during the Civil war when Abraham Lincoln created a tax commissioner of Internal Revenue. This was later ruled unconstitutional but the 16th Amendment to the United States Constitution gave congress the authority to enact an income tax on American civilians. The article continued by revealing "In the 50s, the agency was reorganized to replace a patronage system with career, professional employees. The Bureau of Internal Revenue name was changed to the Internal Revenue Service. Only the IRS commissioner and chief counsel are selected by the president and confirmed by the Senate. The IRS Restructuring and Reform Act of 1998 prompted the most comprehensive reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs." The fairness of this amendment has been debated over the decades and some have made the claims that the IRS is not an official branch of government and its ability to collect taxes is illegal.

What are itemized deductions?

The IRS offers several different ways to exclude income from your taxable income. Although it is impossible to briefly list all of these deductions, some are more important and have a larger effect than other less applied instances. The Internal Revenue Code offers tax deductions to provide an incentive for taxpayers to engage in certain socially beneficial activities including certain business activity and home ownership are two examples.

Personal exemptions play a key role in this process. One may claim a dependent exemption for yourself and for any relative or family member for whom you provide more than 50% financial support. For 2012, the standard deduction is $3,700 per person. If you don't itemize your deductions, you can also take the standard deduction. The value of the standard deduction varies according to your filing status; single, for example, or married and filing jointly. As of 2012, the value of the standard deduction ranges from $7,250 to $16,200.