To receive the largest tax break possible, taxpayers should familiarize themselves with some fundamental aspects of completing their taxes, including the difference between standard and itemized deductions. In most cases, you’re allowed to choose either method when filing your taxes, so it’s vital to determine which method is the best fit for your tax situation.
Despite the importance of the distinction between the two types of deductions and the frequent advantages of itemizing, it’s estimated that only about one-third of Americans itemize their deductions.
Let’s define both types and examine some of the finer details of each.
Standard: A fixed dollar amount taxpayers can deduct from their taxable income based on their age and filing status. Standard deductions for 2016 are:
- $6,300 if you are single or filing separately from your spouse
- $12,600 if you are filing jointly with a spouse or are an eligible widow(er)
- $9,300 if you file as the head of a household
The above deductions may increase for individuals who are blind and for those over the age of 65.
Itemized: Taxpayers can deduct eligible expenses from their taxable income. The amount by which the deduction reduces your taxes is determined by your tax bracket.
- For instance, if you’re in the 20% tax bracket, every $1,000 in itemized deductions will decrease your tax liability by $200.
- It’s possible to itemize deductions even if claiming the standard deduction would result in less federal tax owed. (You might want to do this if you would receive a larger overall tax benefit through itemizing on your state return than if you claimed a standard deduction on your federal return.)
How Could This Impact You as a Taxpayer?
There are potential benefits for choosing either standard or itemized deductions, depending on your unique circumstances.
The advantages of standard deductions include:
- Allows for a deduction if you lack qualifying expenses for itemized deductions
- Simplifies the filing process by eliminating the need to itemize deductions
- Straightforward nature decreases the potential that you’ll be audited
On the other hand, itemizing deductions often results in less taxable income and therefore less taxes owed. You might want to itemize your deductions on a Form 1040, Schedule A if your expenses included any of the following:
- Large charitable donation
- Mortgage interest
- Real estate taxes
- Large, uninsured medical or dental expenses
- Large, uninsured casualty expenses (such as a fire or flood)
- Theft losses
- Unreimbursed employee business expenses
*Also, if you are filing separately from your spouse (MFS) and your spouse chooses to itemize their deductions, you will be required to itemize as well and will not be allowed to take the standard deduction option.
Essentially, if you spent a significant amount on medical treatment, mortgage interest, business expenses, or charitable gifts, you should examine the financial discrepancy between standard and itemized deductions in your case.
S.H. Block: Advocates for Individuals and Businesses with Serious Tax Issues
Knowing the basics of filing your taxes can go a long way toward lessening your tax liability or even increasing your refund. However, many individuals who have failed to file in recent years or who have let their tax liabilities swell to an impractical figure might need the help of a tax representation professional.
If you or your business owe the IRS more than $10,000 and have been receiving correspondence threatening to enforce a lien, levy, or garnishment or an audit of your previous tax filings, please contact S.H. Block Tax Services today. We are a family firm with more than a century’s worth of tax representation experience, and we would love the chance to speak with you about your current situation.
Please call (410) 793-1231 today to receive a free consultation, during which we can diagnose your problem and develop an effective resolution that will bring you and your business back into compliance. You can also complete the form on this page to register for a free consultation and learn more about our firm.
Remember, federal tax deadlines and those in the State of Maryland are quite strict, and IRS agents are more aggressive than ever during this time of year. If you have a tax liability that has developed into a serious issue, the time to act is now!
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.