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Tax Deductions: Choosing to Itemize or Claiming the Standard Deduction

Posted by on January 3, 2020
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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.

  1. Itemize deductions. Add up all of your allowable expenses and subtract them from your income.
  2. 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.

The Standard Deduction

The standard deduction is a fixed dollar amount that reduces the amount of income on which you are taxed. The amount of the standard deduction depends on your filing status and whether you can be claimed as a dependent on another return.

For the 2019 tax year, for example, the standard deduction is:

  • $12,200 for single
  • $18,350 for head of household
  • $24,400 for married filing jointly
  • $12,200 for married filing separately
  • $24,400 for qualifying widow(er)

For dependents, the standard deduction is the greater of

  • $1,050, or
  • the dependent’s earned income plus $350, but not to exceed the normal standard deduction for that dependent’s filing status.

There’s an additional amount that’s added to the normal standard deduction if you are age 65 or older or blind. That amount is $1,300. These standard deduction amounts are adjusted annually for inflation.

Is everyone entitled to the Standard Deduction?

Most taxpayers qualify for the standard deduction however there are some limitations:

  • If your filing status on your return is married filing separately and your spouse itemizes his or her deductions, you will not be able to claim the standard deduction.
  • If you are a nonresident alien or dual status alien during any part of the year, or you are filing a return for less than 12 months, you will not be entitled to the standard deduction
  • You can only claim one, the standard deduction or the itemized deduction, not both.

Itemized Deductions

Itemized Deductions are reported on Schedule A [Itemized Deductions]. Just like the standard deduction, itemized deductions are subtracted from your adjusted gross income. The difference is that itemized deductions are a tally of actual expenses you incurred that the IRS has determined you can take a deduction for.

It only makes sense to take the standard deduction if all of these individual expenses add up to more than the amount of the standard deduction.

What can you take deductions for?

Here’s a taste of what you can claim:

  • Medical and dental expenses subject to 10% floor
  • HSA and retirement contributions
  • State and local taxes capped at $10,000, real estate taxes, personal property taxes, and state sales tax
  • Interest you paid – including home mortgage interest, mortgage insurance premiums, and investment interest
  • Gifts to charity
  • Casualty and theft losses from federally declared disasters
  • Home business expenses
  • Moving expenses or special deductions for members of the armed forces/reservists, qualified actors or performers

To find out all of the expenses you can potentially deduct, be sure to explore the topics related to itemized deductions on the IRS website.

Don’t get carried away claiming itemized deductions.

You need documentation as proof that you actually incurred the expenses in the event that the IRS decides to audit you. For most people, this means saving a lot of receipts. Speaking of which, itemized deductions can be a huge audit trigger, so don’t go overboard.

As mentioned before, it is important to understand what expenses are deductible under the tax code. Above all, you don’t want to get slammed by an audit.

Our application is able to assist you along the way. If you’re unsure if a certain expense can be itemized, don’t worry. Also, help from our support team is only a phone call, e-mail, or live chat away.

Now you’re ready to file your taxes

Now that you are more familiar with the two types of deductions, you will be able to decide which will benefit you the most. The larger tax deduction will lower the amount you owe or increase the amount of your refund. Prepare your return on PriorTax and the larger of the two deductions is selected for you. 

This gives you the peace-of-mind you’re looking for when filing your taxes.

*Our 2019 tax application is ready so you can start on your 2019 taxes before the April 15 tax deadline! Just create an account, enter your tax information, and submit your return for e-file. It will be e-filed once the IRS starts accepting electronically filed returns.

Here’s some helpful blogs to get you prepared for the 2020 tax season or caught up in general.

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