Tax Deductions: Can You Itemize or Take the Standard?
Do you know the difference between the two types of deductions (hint: it changed with the 2018 Tax Law). Planning goals like paying off your mortgage, paying down your college loans and etc. depend on the answer to this question….
It’s important to know whether you should file using the standard deduction or whether you should itemize your deductions. Deductions reduce the amount of your taxable income when filing a federal income tax return and reduce the amount you owe in taxes.
You have a choice of either taking a standard deduction or itemizing your deductions. Choose the method that gives you the lower taxable income. Due to tax law changes in the last couple years, you might not want to continue to take the same action with your deductions as you did in past years, so it’s important to look into which is the best option for you, today.
Here are some details from the IRS about the two methods to help you understand which you should use:
Standard deduction
The standard deduction amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether you are 65 or older or blind, and whether another taxpayer can claim you as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.
Most filers who use Form 1040 or Form 1040-SR, U.S. Tax Return for Seniors, can find their standard deduction on the first page of the form.
Taxpayers who can't use the standard deduction include:
A married individual filing as married filing separately whose spouse itemizes deductions.
An individual who files a tax return for a period of less than 12 months. This could be due to a change in their annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
Itemized deductions
Taxpayers may need to itemize deductions because they can't use the standard deduction. They may also itemize deductions when this amount is greater than their standard deduction.
Taxpayers who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.
A taxpayer may benefit by itemizing deductions for things that include:
State and local income or sales taxes
Real estate and personal property taxes
Mortgage interest
Mortgage insurance premiums
Personal casualty and theft losses from a federally declared disaster
Donations to a qualified charity
Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Individual itemized deductions may be limited. Form 1040, Schedule A Instructions can help determine what limitations may apply.
For help in understanding the best option for you deductions, please give us a call. We’re always happy to help you or someone you care about.