Tax season is here and when it comes to filing your personal taxes it is important to know whether or not you should take the standard deduction or itemize your personal deductions. You can either take the standard deduction or you can choose to itemize, you cannot do both. Here are some things to consider before you file.
Please note: The standard deduction applies to your personal tax filings and not your business’s itemized deductions. You can choose to take the standard deduction or itemize your personal deductions, and then you will be able to use your business’s itemized deductions with your business entity as well. If you do not have a business entity established for your business, you could be losing thousands every year in overpaid taxes. We can help – Schedule an appointment!
What is the Standard Deduction?
The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them 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.
For the majority of individuals, the IRS allows for individuals to deduct $12,400 or if married and filing jointly, the deduction rises to $24,800
Taxpayers will benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions.
What are Personal Itemized Deductions?
Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they are not allowed to use the standard deduction.
A taxpayer may benefit by itemizing deductions if any of the following apply to their tax situation,
- Can’t use the standard deduction or the amount you can claim is limited
- Had large uninsured medical and dental expenses
- Paid mortgage interest or real property taxes on your home
- Had large “Other Itemized Deductions” (line 16 on Schedule A (Form 1040))
- Had large uninsured casualty or theft losses from a Federally declared disaster
- Made large contributions to qualified charities
For most individuals, taking the standard deduction is easier and offers a larger reduction in your taxable income. If you feel that your itemized deductions could be larger than the allowed standard deduction, it is important to total all of your expenses and make an educated decision for what is best for your situation.
If you have questions about whether you should take the standard deduction vs. itemizing this tax season, we are always here to help. Schedule a call to speak with one of our experts!