Every year you have the option to take the standard deduction or to itemize deductions on your tax return. Depending on your circumstances, one may make more sense than the other.
The Standard Deduction
The standard deduction is a fixed dollar amount that reduces the income you’re taxed on. This fixed amount depends on your filing status. For 2016, the standard deduction is:
– For single of married filing separately $6,300
– For married filing jointly or qualifying widow(er) $12,600
– For head of household $9,300
This amount increases if you are blind or age 65 or older.
The IRS reports that approximately two out of every three returns claim the standard deduction.
Some of the benefits of taking the standard deduction include:
– Simplicity – no need to keep records and receipts of your expenses and charitable contributions
– You get a deduction even if you have no expenses that qualify for claiming itemized deductions
– Eliminates the complications that arise from itemizing deductions
There are a couple of situations in which you will not be able to take the standard deduction. For example, if you are married and filing separately, you can’t claim a standard deduction if your spouse itemizes deductions. Although not as common, if you’re a nonresident alien, a dual-status alien or someone who is filing a tax return for a period of less than a year, then you won’t be eligible for the standard deduction. In some cases, your deduction might also be limited if you’ve been claimed as a dependent on someone else’s taxes.
Itemized deductions also reduce your taxable income. In most cases, it makes sense to itemize deductions if they add up to more than your standard deduction. This requires a calculation of all your expenses and other money spent that qualifies as a deduction, which is why it is a more complicated process than simply taking the standard deduction.
You might benefit from itemizing your deductions if you:
– Have itemized deductions that total more than the standard deduction you’d receive
– Had large, uninsured medical and dental expenses
– Paid mortgage interest and real estate taxes on your home
– Had large, unreimbursed expenses as an employee
– Had a large, uninsured casualty (such as fire, flood, or wind) or theft losses
– Made large contributions to qualified charities
– Had large, unreimbursed miscellaneous expenses
Other common tax deductions include work-related expenses, IRA contributions, and student loan interest. Some not so common tax deductions include the cost of tax preparation, moving expenses, gambling losses, and lawn care and landscaping.
In certain situations, even if your total itemized deductions are less than your standard deduction it still makes sense to itemize. This can happen if you itemize on your state return and get a much larger tax benefit than you would if you had claimed the standard deduction on your federal return.
In addition, if your adjusted gross income (AGI) is more than a certain amount, some of your itemized deductions are limited. For 2016, limitations apply if your AGI is more than:
– $309,900 if married filing jointly or qualifying widow(er)
– $284,050 for head of household
– $258,250 for a single taxpayer
– $154,950 if married filing separately
Contact Global Law PLLC to set up a consultation to make sure you’re making the most of your tax deductions and other tax reduction strategies!Please share:
- 20 Apr, 2017
- Karina Torres
- 0 Comments