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Should I Itemize Deductions or Use the Standard Deduction?

Save Thousands Just By Itemizing Deductions

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Though we all groan about having to pay taxes, the government is nice enough not to tax us on the full amount of our earnings.

There are two big buckets of deductions the government gives us: the first is called above the line, and the second is called below the line, which we’ll cover here. (The “line” these deductions refer to is a literal line on your 1040 form for the Adjusted Gross Income.)

Below the Line Deductions

Below the line deductions come in two types: one is called the standard deduction, and the second is called itemized deductions.

The Standard Deduction

The standard deduction is an amount of income that the government will not tax any taxpayer on. Most people take the standard deduction on their returns, which is worth anywhere from $5,800 to $11,600, and opt out of the whole process of itemizing. It’s as simple as saying, “I’m a single person (or married filing singly or married filing jointly), and yes, I would like the standard deduction.” For some people, this is just fine. After all, that’s a lot of money, and taking just the standard deduction makes your taxes simpler and faster. What’s not to like?

Check out the chart below to find out what the standard deduction is for your filing status.

If Your Filing Status Is . . . Your Standard Deduction Is:
Single or Married Filing Separately $5,800
Married Filing Jointly or Qualifying Widow(er) With Dependent Child $11,600
Head of Household $8,500


*Do not use this chart if you were born before Jan. 2, 1947 or are blind or if someone else can claim you (or your spouse, if filing jointly) as a dependent. Use table seven or eight on this IRS page instead.

Itemized Deductions

Itemizing your deductions means listing each deduction you qualify for. People do this when the sum of all their deductions is greater than the standard amount. Some things people might itemize include medical expenses, large charitable donations, and mortgage interest payments.

But How Do You Know Which One Is Right for You?

At stake in this decision are savings in terms of money and time. For some people, taking the time to itemize could save them hundreds or thousands of dollars in taxes. On the other hand, people who don’t take the time to itemize could miss out on tax savings.

The most recent study in 1998 by the General Accounting Office estimated that 2.2 million people overpaid their taxes because they chose not to itemize. It seems many of us wrongly take the standard deduction because it’s easier, we forgot to keep records during the year, or we assume we don’t have any deductions.

Then again, there are the people who decide to itemize even though it’s not worth it. They just made their lives needlessly more complicated (and expensive, if they relied on an accountant to do this for them) for no real financial benefit.

Should You Itemize?

Here are some instances in when you should consider itemizing. Did you:

  • Have large uninsured medical and dental expenses?
  • Pay interest or taxes on your home?
  • Have large unreimbursed employee business expenses?
  • Have large uninsured casualty or theft losses?
  • Make large charitable contributions?

And sometimes you have no choice but to itemize, like when:

  • You are married and filing a separate return, and your spouse itemizes deductions
  • You are a nonresident alien or a dual-status alien

Below the line deductions come in two types: one is called the standard deduction, and the second is called itemized deductions.

Itemized Deductions

Itemizing your deductions means listing each deduction you qualify for. People do this when the sum of all their deductions is greater than the standard amount. Some things people might itemize include medical expenses, large charitable donations, and mortgage interest payments.

But How Do You Know Which One Is Right for You?

At stake in this decision are savings in terms of money and time. For some people, taking the time to itemize could save them hundreds or thousands of dollars in taxes. On the other hand, people who don’t take the time to itemize could miss out on tax savings.

The most recent study in 1998 by the General Accounting Office estimated that 2.2 million people overpaid their taxes because they chose not to itemize. It seems many of us wrongly take the standard deduction because it’s easier, we forgot to keep records during the year, or we assume we don’t have any deductions.

Then again, there are the people who decide to itemize even though it’s not worth it. They just made their lives needlessly more complicated (and expensive, if they relied on an accountant to do this for them) for no real financial benefit.

Should You Itemize?

Here are some instances in when you should consider itemizing. Did you:

  • Have large uninsured medical and dental expenses?
  • Pay interest or taxes on your home?
  • Have large unreimbursed employee business expenses?
  • Have large uninsured casualty or theft losses?
  • Make large charitable contributions?

And sometimes, you have no choice but to itemize, like when:

  • You are married and filing a separate return, and your spouse itemizes deductions
  • You are a nonresident alien or a dual-status alien

If you decide it makes sense for you to itemize, then get an accountant who can take on this task for you. And if you have more questions about deductions, our Ace Your Taxes Bootcamp goes into more detail on the subject.

Check out these smart LearnVest stories:

Getting audited is no fun. Find out what the top IRS audit triggers are.

You might have heard about the dreaded Alternative Minimum Tax. Could you be hit with it?

One of the most important numbers to know for your taxes: your Adjusted Gross Income. Find out how to calculate it with some easy questions.

Source: Thinkstock
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