When filing your taxes, you may struggle to determine whether you should choose to use the standard deduction or itemize your deduction. Finding the solution to this is very important as deductions reduce the amount of taxable income when filing your federal income tax return. Basically, deductions can reduce the amount of taxes you owe.
The standard deduction amount adjusts yearly and varies according to your filing status. The standard deduction amount depends on multiple things: your filing status, whether you are 65 or older, and whether another taxpayer can claim you as a dependent. If you are age 65 or older on the last day of the year and don’t itemize deductions, you can be entitled to a higher standard deduction.
If you are any of the following, you can’t use the standard deduction:
- A married individual filing as married filing separately whose spouse itemizes deductions.
- Your tax return was for a period of less than 12 months.
- This could be caused by a change in your annual accounting period.
- You were a nonresident alien or a dual-status alien during the year.
- However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
If you can’t use the standard deduction, you may need to itemize your deductions. Alternatively, you may also choose to itemize your deductions when your itemized deductions are greater than your standard deduction. You may benefit by itemizing deductions for things that include:
- State and local income or sales tax
- Real estate and personal property taxes
- Mortgage interest
- Mortgage insurance premiums
- Personal casualty and theft losses from a federally declared disaster
- Donations to a qualified charity
- Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Many people don’t know that they have a choice of either taking a standard deduction or itemizing your deductions. It is very important that you investigate which deduction to take, as the past few years have seen multiple tax law changes.
For more information, always consult a Certified Public Accountant. Submitted by: Jorge Rivera, Manager, Tax Services, Thomas Howell Ferguson P.A. CPAs, (850) 668-8100. Email questions to Jorge here.