Tax Tip - Itemize vs Standard Deduction

The standard deduction is exactly what it sounds like—a flat amount that you can deduct from your taxable income. The amount you can deduct is based on your filing status, number of dependents, and what year you’re filing the taxes for. For additional information on the standard deduction, see IRS Publication 501.

When you itemize deductions, you have the ability to deduct the actual dollar amount of individual deductions. Some of these deductions come in the form of mortgage interest, property taxes, medical expenses, and more. If you think that if you totaled up all of your allowed deductions and it would be greater than the standard deduction, it would probably be wise to itemize.

What Expenses Can be Itemized?

-Mortgage interest      

-Charitable contributions

-Property taxes.

-State and local income taxes.

-Medical expenses that exceed 7.5% of your adjusted gross income.

 -Various miscellaneous expenses that exceed 2% of your income such as: union dues, tools and supplies needed for work, tax preparation fees, some legal fees, and many more.

Should You Itemize?There is no right or wrong answer, and it depends on your situation. To determine if itemizing would be valuable, you should take a look at Schedule A of Form 1040. On this sheet, you can list your itemized expenses, and then total them up to compare the amount to the standard deduction. If the itemized amount is greater, then you would want to itemize. If the total itemized amount is less than the standard deduction, you would not want to itemize.

The largest deductions for most people are mortgage interest and property taxes, and in these situations, even a modest mortgage can put you over the standard deduction limit. Since this can mean hundreds of dollars over the standard deduction, the tax savings can be significant.

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