Paying to much in taxes? Making sure you take the best deductions is important so then you can maximize your tax refund. And knowing the difference between the standard deduction and itemized deductions is the start.
When filing your tax return for the year you have some things to look into and some questions to answer. You have to collect all of your W-2s, 1099s and any other documentation to show your income for the year. You also have to decide whether you are going to take the standard deduction or if you are going to itemize.
Sometimes you have to itemize, and other times it is smarter to take the standard deduction. Looking into the deductions by yourself can be hard, and sometimes hiring an accountant is not an option, so what are the standard and itemized deductions and which should each individual use?
Standard Deduction
What is a standard deduction, and how much is the deduction? A standard deduction is a specific dollar amount that reduces the amount of taxable income you have. The standard deduction has two parts, the basic standard and additional for age and/or blindness.
The basic standard deduction for 2017 was $6,350 for a single taxpayer. The deduction was $12,700 for married filing jointly and $9,350 for a head of household. The additional standard deduction for age or the blind was and additional $1,550 dollar deduction. To get the additional $1,550 for age you must be over the age of 65.
In 2018, the standard deduction will increase to $12,000 for single individuals, $18,000 for head of household and $24,000 for married filing joint, and surviving spouses. The additional deduction for age and blindness will be at $1,300.
Itemized Deductions
What does it mean to itemize your deductions? When an individual has multiple deductions such as; mortgage interest payments, property taxes, charitable donations, out-of-pocket medical expenses and more, that individual can potentially itemize their deductions.
If what you paid in deductions were greater than the standard deduction, it would be beneficial to itemize. If the amount of the expenses were less than the standard, it would be smarter to take just the standard deductions. There are times however, that someone is required to itemize their deductions.
When do you have to itemize your deductions?
Reason 1- A married taxpayer filing as married filing separately whose spouse itemizes deductions
Reason 2- An individual who files a tax return that is for a period less than 12 months because of a change in his or her annual accounting period
Reason 3- An individual who was a nonresident alien or a dual-status alien during any part of the year
Reason 4- An estate or trust, common trust fund, or partnership
Itemize Vs. Standard Deduction
Itemize deductions are a great option if you have a large amount of uninsured medical and dental expenses, or if you large amount of non-reimbursed employee business expenses. In addition, a large contribution to qualified charities makes another good reason to itemize your deductions; these deductions could save you thousands of dollars a year in taxes.
However, if you do not have an immense amount of extra expenses the standard deduction is an easy way to finish your tax return for the year. With the standard deduction also almost doubling for the upcoming tax year, it will be more beneficial for those who never itemize. For people who do itemize normally, taking the standard deduction might now become a better and easier option as well.