Even if you could care less about filing taxes, you have probably heard terms like ‘standard deduction’ and ‘itemizing.’
What exactly do these two terms mean and how do they compare and contrast? Due to new tax laws that were implemented for the 2018 tax year, the decision to itemize or take the standard deduction has changed for some folks.
Standard Deduction vs. Itemized Deduction
You have two options when it comes to how you can deduct the amount of money you owe to the IRS in federal taxes: standard deduction vs. itemized deduction.
The standard deduction has always been popular because it is very easy to claim and doesn’t require much time or effort. However, some taxpayers can actually save more if they take the time to itemize their deductions – though this method is taxing (no pun intended).
Whether you itemize or take the standard deduction – it is the biggest deduction that you will get to make on your federal tax return, so you should take it very seriously.
Standard Deduction – What You Need to Know
The standard deduction is an amount the federal government grants taxpayers each year that they can subtract from the tax owed. The figure is related to A) the type of return filed and B) designated each year by the federal government based on inflation.
For example, in 2018 the standard deduction rates were:
- Single taxpayers = $12,000
- Head of Household taxpayers = $18,000
- Married Filing Jointly taxpayers = $24,000
As long as you meet the requirements of the filing status, you may claim the standard deduction with no questions asked. It is simply a gift the IRS gives you to help make your tax liability less distressing.
Many taxpayers opt to claim the standard deduction. It is easy to do, and since the amounts were raised significantly for the 2018 tax year, there was little hesitation among most taxpayers.
However, if you think that itemizing your deductions can give you a higher tax break than the listed standard deduction amount, it literally pays to spend the extra time and energy calculating it.
Itemized Deduction – What You Need to Know
Every U.S. citizen has the right to deduct certain expenses from their taxes each year. Otherwise known as ‘allowable expenses,’ it includes payments for things like home mortgage interest, property tax, sales tax, medical expenses, and charitable donations.
Often the quickest way to get an indication if you could save more by itemizing is to compare the interest of your mortgage (plus any points paid on the purchase of the residence) to the standard deduction amount.
Any taxpayer that had more interest paid on a mortgage within the last year than the standard tax deduction rate is prone to get the most advantages from itemizing. For this reason, homeowners are the most likely to benefit from itemizing their deductions compared to just relying on the standard deduction. The Schedule A Form can help provide a resource for all the ways you could save if you own a house.
Additionally, itemizing each deduction you need to claim allows you to put money away for the allowable expenses mentioned earlier, like state and local taxes and charitable donations.
Standard Deduction vs. Itemized Deduction – Which Should I Do?
The standard deduction is simple and straightforward, and thanks to new tax laws it provided a more substantial break for taxpayers in 2018. The trend will continue in 2019.
Itemized deductions have always made the most sense for homeowners. The federal government likes to reward homeowners by providing a ton of tax breaks related to mortgage, property taxes, and home improvements.
Unless you are a homeowner, the decision to file with a standard deduction or itemized deduction really depends on a case-by-case basis.
The standard deduction varies based on your age, income, and filing status. Meanwhile, itemizing is a lot more work, but it can be more beneficial to make the extra calculations, especially if you are a homeowner.
Tax Help for Standard Deduction vs. Itemizing
Do you still have questions? Levy & Associates can examine your own personal circumstances and make a recommendation regarding how you should file and what deduction you should take. We can also help you itemize.
Contact us today! Call 800-TAX-LEVY or visit www.www.levytaxhelp.com.