Standard and itemized. It may not be entirely clear what the actual difference is between the two deductions, and which you should apply to your tax filing. In short, the best deduction to take is the one that reduces your taxable income the most, equaling the least taxes paid or even a refund. Read below to learn the difference – you may just run away with the biggest refund you’ve received yet.
A standard deduction is a fixed dollar amount minused from your taxable income.About ⅔ of filers claim standard, so it’s something to consider if you don’t already. In 2015, the Single, Married (Separately/Jointly), and Head of Household standard deductions were $6,300; $6,300/$12,600; and $9,250, respectively. This deduction can increase, if you happen to be 65 or older, legally blind, or have suffered loss from a federally declared disaster.
Going the itemized route also reduces your taxable income, but every expense is taken into account. For example, if you’re in the 15% tax bracket, every $1,000 in itemized deductions knocks $150 off of your tax bill. When filling out Form 1040, you add your itemized deductions on Schedule A.
Both standard and itemized deductions have their pros and cons. Here’s how to weigh your options.
Pros: These deductions are, in many cases, generous, especially when you qualify for the additional hikes. Not to mention it’s quick and easy – no fussing over the exact deductions you can claim. Often times, the standard deduction exceeds your itemized number, which is why most people claim it. Standard is the quick and dirty solution to deductions, and taxes in general.
Cons: The main drawback is that if you don’t bother comparing your itemized amount, you won’t know that it’s actually the larger deduction; those who claim standard often guess or assume their itemized will be lower.
Pros: Claiming itemized can easily turn into a larger deduction than standard, making for a happier tax season. Another added benefit is that you’ll have a better understanding of each component of your financial situation and it could make the rest of your taxes and other obligations easier to navigate. Itemized is great for those who have mortgage interest, income and sales tax, property tax, higher than average medical and dental expenses, and donations. If half or more of these fit your circumstances, it will certainly be worth crunching the numbers.
Cons:The most dreaded part of claiming itemized is the time and hassle involved. Also, you can’t claim itemized on the 1040A or 1040EZ.
As you’re gathering your documents, records, and receipts, evaluating your potential deductions will help you decide which deduction to take. The best route is bringing in a tax professional and getting it all laid out – higher digits on your tax return could be in your future.
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