Am I better off claiming the standard deduction or itemizing my deductions on my federal taxes?
When it comes time to filing your taxes, you may wonder if it makes more sense to itemize your deductions or to choose the standard deduction. Even if you are eligible to claim a deduction for mortgage interest that you paid, it does not necessarily mean that you should itemize your deductions. To make an informed decision, it is important to review both the standard deduction and itemized deductions.
The Standard Deduction
The standard deduction is a specific dollar amount that reduces your taxable income. If you choose to take the standard deduction, then you are not allowed to itemize any deductions. The standard deduction is generally adjusted for inflation each year. It also varies, depending on your filing status.
For the 2013 tax year, the standard deduction was:
- Single or married filing separately $6,100
- Married filing jointly or Qualifying widow(er) $12,200
- Head of household $8,950
- Additional standard deductions are available to taxpayers who turned 65 or became blind before the end of the tax year. To claim the additional standard deduction for age or blindness, make sure to check the appropriate boxes on the IRS Forms 1040 or 1040A. The additional standard deductions cannot be claimed when using the IRS Form 1040EZ.
Ineligible to Claim the Standard Deduction
You are not allowed to claim the standard deduction if:
- You are married and file a return separate from your spouse and your spouse itemizes deductions on his or her return.
- You were a nonresident alien or dual-status alien during any part of the tax year. An exception exists for residents of India that meet the rules laid out in IRS Publication 519
- You file a return for a time period less than 12 months, due to a change in your annual accounting period
- Estates or trusts, common trust funds, or partnerships are not eligible to claim the standard deduction
If you are considering itemizing your deductions, you should compare your standard deduction to your eligible itemized expenses, to see whether itemizing benefits you or not.
There are a wide range of expenses that are eligible to be itemized. Here are some common eligible deductions whose costs you should pay attention to, to see if itemizing makes sense:
- Mortgage interest paid - Calculate how much you paid during the tax year in mortgage interest. This can be quite a significant deduction. Your mortgage lender will send you a 1099 that shows how much interest you paid for the year.
- Charitable contributions made - Do you regularly contribute in a verifiable way to a church, religious institution, or other charitable organization? Did you make a donation of a large asset to a qualifying charitable organization? Make sure to keep good records, as you are likelier to be audited when claiming a large charitable deduction, especially if it seems inconsistent with the taxable income level shown on your return.
- Medical and Dental Expenses Paid - Medical and dental deductions are complicated. While a wide range of procedures are eligible to be deducted, you can only deduct the amount by which your total eligible medical and dental care expenses for the year exceed 7.5% of your adjusted gross income (AGI). For example, assume that you had an AGI of $50,000 and medical expenses of $4,000. In this case, any medical expenses less than $3,750 (7.5% of $50,000) are not deductible. So, you would have an itemized medical deduction of $250. Your total medical expenses for the year must be reduced by any reimbursement, regardless of whether you receive the reimbursement or if it is paid directly to the doctor or hospital.
- Casualty, Disaster, and Theft Losses - The IRS generally allows you to claim as a legitimate deduction any casualty and theft losses that are related to your home, household property. You are not permitted to deduct losses you suffered that were covered by insurance, unless you submitted a timely insurance claim. If you are reimbursed, you must reduce the loss you claim by the amount of any reimbursement. Losses due to theft must have been illegal under your state laws and the theft must have taken place with criminal intent.
There are many other categories that can be itemized on your returns. Below, you will find a table with a list of categories and links to the IRS publication that explains the rules for each category. If you are not experienced in doing your own returns, be very careful when itemizing your deductions. Consider hiring a tax professional if you don’t understand what the IRS requires. Remember, if you make a mistake, it can take the IRS a few years to catch it. If that happens, they add on years of interest and penalties to the revised tax assessment that corrects the error you made.
Lastly, it is your responsibility to yourself to pay the taxes you owe and not a cent more. Make sure you look at whether you are better off claiming the standard deduction or itemizing your deductions.
|Medical and Dental Expenses||Topic 502|
|Deductible Taxes||Topic 503|
|Home Mortgage Points||Topic 504|
|Interest Expense||Topic 505|
|Charitable Contributions||Topic 506|
|Miscellaneous Expenses||Topic 508|
|Business Use of Home||Topic 509|
|Business Use of Car||Topic 510|
|Business Travel Expenses||Topic 511|
|Business Entertainment Expenses||Topic 512|
|Educational Expenses||Topic 513|
|Employee Business Expenses||Topic 514|
|Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)||Topic 515|