When it comes to filing your federal tax return, you have some important decisions to make that will impact how much your refund is or what you owe the IRS. One of the most important questions to answer is – Should I take the standard deduction or itemize my deductions?
Tax deductions lower your taxable income and can save you money on your tax return. That’s why it’s so important to track your spending, hang onto receipts and keep records of your payments all year long. When it’s time to file, gather up those documents and add together all of your deductible expenses. This will determine if standard or itemized will give you the higher deduction amount and the least amount of taxes owed. So, what’s the difference?
|The standard deduction is a dollar amount that lowers your taxable income. These amounts increase slightly each year to account for inflation. The IRS provides the following standard deduction amounts based on your filing status.
These amounts do not apply if you are 65 or older or legally blind, as your standard deductions are higher. You cannot take the standard deduction if someone else can claim you as a dependent, if you are married filing separately and your spouse itemizes, or if you are a dual-status alien.
If you have few expenses and payments throughout the year, taking the standard deduction is a no-brainer. If you have many expenses and are unsure of which amount is higher, it’s best to compare both before deciding.
|If you've added up your deductible expenses and they exceed your standard deduction dollar amount, you probably want to itemize your deductions. In this case, you'll use Form 1040, Schedule A to claim your eligible deductible expenses. These include:
Note: If your adjusted gross income (AGI) exceeds a certain amount depending on your filing status, you may have a limit imposed on your total itemized deductions. For example, if you’re single, this threshold is $258,250 and if you’re married filing jointly, it’s $309,900.
Not sure whether you should take the standard deduction or itemize your deductions? Visit your local tax preparer for professional help. Follow us on Facebook and Twitter for more tax tips and form breakdowns.