Trying to understand anything tax related makes you feel like you’re back in grade school.
However, it doesn’t have to be difficult. Here’s some sure-fire information that may help you out if you’re a first time filer, or if you have some general questions about claiming tax deductions.
What’s the difference between claiming the standard deduction and itemizing deductions?
In general terms, a tax deduction is a certain amount you are allowed to exclude from your income. This means that you are taxed on a lower amount of income, and thus pay less in taxes.
While not as valuable as tax credits – which directly decrease your tax liability – deductions can still reduce your tax burden significantly.
There are two ways to claim deductions.
- Itemize deductions. Add up all of your allowable expenses and subtract them from your income.
- Claim the standard deduction. Deduct the basic amount available to everyone.
While preparing your taxes you need to figure out whether you get a bigger tax break from itemizing your deductions or claiming the standard deduction. Most people end up claiming the standard deduction, but some people have enough allowable expenses to make it worth their while to itemize deductions.