Standard Deduction vs. Itemized Deduction: 5 Tips to Help You Choose

Standard Deduction vs. Itemized Deduction: 5 Tips to Help You Choose

by Greg Lindberg, August 2016

Nobody is truly in love with taxes, but it's safe to say that we all love tax breaks. There are numerous personal and business expenses you can write off when filing your income tax return. It's imperative to properly claim these deductions so that you receive the biggest savings and keep more of your hard-earned money in your bank account.

The two basic ways to take advantage of a tax write-off are either by claiming the standard tax deduction or by itemizing deductions on your return.

What Is the Standard Deduction?

The standard deduction is an amount set by the federal government that you can deduct from your income taxes. In other words, you can deduct a portion of your taxable income so that it reduces your overall IRS tax liability. Standard deduction amounts vary based on your filing status as a taxpayer. If you are a single filer, a joint married filer, a head-of-household filer, or a widow(er), you are eligible for specific amounts when claiming the standard deduction.

Taxpayers who are blind or over age 65 are eligible for special standard deduction amounts as well. Typically, standard deduction amounts are adjusted for inflation each year, so be sure to check on the latest standard deduction amount that applies to you before you file.

What Are Itemized Deductions?

The other option is to itemize your income tax deductions. This must be done on Schedule A of Form 1040 when you prepare and file your tax return. If you itemize, you must carefully document each write-off with a receipt or other form of documentation.

Eligible expenses you can itemize and deduct on your individual return include certain medical and dental expenses, mortgage interest, state income tax, real estate taxes, casualty losses, charitable contributions, and unreimbursed employee expenses. Of course, there are far more business expenses you can itemize and write off if you meet certain deduction requirements.

How to Choose the Standard Deduction vs. Itemized Deduction

1. Determine if you're eligible for both deduction options.

Not everyone is eligible for both the standard and itemized deductions. For example, if you don't have any expenses you can itemize, you're basically required to take the standard deduction. Or, if you're married but file separate tax returns and your spouse itemizes, you're not eligible to claim the standard deduction; you must itemize, too.

2. File the proper tax forms.

Claiming the standard deduction vs. itemizing can mean filing different IRS tax forms. If you take the standard deduction, you can use Form 1040, Form 1040-A, or Form 1040-EZ. If you itemize taxes, you must use Form 1040 and Schedule A.

3. Research potential itemized deductions.

If you're able to itemize deductions on taxes, spend time determining the types of write-offs for which you are eligible. Do you have lots of unreimbursed employee expenses? Are you paying off a mortgage on which you can deduct interest? Do you make numerous charitable contributions to help those in need? Make sure you have ample itemized write-offs to merit taking this avenue.

4. Determine how much time you have to file your return.

If you're in a pinch to file your return at the last minute, you may opt for a standard deduction. This is a set amount, so there's essentially no work on your part involved in calculating your tax break. If you itemize, it can take lots of legwork to add up all of your deductible expenses and find the necessary documentation to prove each write-off to the IRS. So, make sure you have enough time if you're going to itemize, or take the standard deduction if you're short on time or research.

5. Do the math.

If you qualify for either option, it's always worth doing the math to determine whether to choose the standard deduction vs. an itemized deduction. Calculate which method would result in the bigger savings on your taxes, and stick with that method, unless your filing status or expenses change significantly.

Tying It All Together

When it comes to tax preparation and filings, it's a must for you to ensure you take advantage of every tax break that can reduce your IRS bill and perhaps provide an income tax refund. This includes determining whether you should choose the standard deduction or if you should itemize your write-offs.

Also, be aware of which tax return form you must file to avoid a potential audit. The best solution for tax help is to hire an accounting professional who is experienced in helping others with similar filing needs.

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