Itemize on Taxes or Use Standard Deductions – Which One Will Save You More Money?
- February 25th, 2015
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Deductions are a popular discussion during tax season, and it’s not hard to see why. Everyone loves saving money. Unfortunately, understanding which deductions you qualify for and how to appropriately file for those deductions can be confusing, if you have a limited understanding of taxes and deductions. Still, we don’t believe it should be all that difficult to save money. Deciding to use a standard deduction or if you itemize on taxes, will determine how much you save this tax season. Here’s how to determine which option is best for you.
Should You Use a Standard Deduction or Itemize on Taxes?
Deciding to use a standard deduction or itemize on taxes may be a decision that is made for you before you even get to file your taxes. Some tax payers may find that they do not qualify for itemized deductions (their are a variety of reasons which we will cover below) while some may be able to make an itemized deduction when their itemized deductions are greater than their standard deduction. To fully understand this topic, we suggest that you schedule a free consultation with an accountant, but we will attempt to cover the necessities.
Standard Deduction on Taxes
If you qualify for tax deductions this tax season, chances are you will be making a standard deduction. A standard deduction (according to the IRS) is a, “dollar amount that reduces the amount of income on which you are taxed.” It consists of the sum of your basic standard deduction in addition to any other standard deductions you may qualify for (say if you’re 65 or older or if you have a physical handicap). You will not qualify for a standard deduction if you are an estate or trust or if you were a nonresident alien or dual-status alien during the year. For a full list of qualifications see Topic 551.
Itemize on Taxes
If your itemized deductions are greater than your standard deductions or you do not qualify for standard deductions, you will have to itemize on taxes. Itemizing can result in a lower tax bill but very few tax-payers fully take advantage of itemizing. It may be because of confusing regulations and information, but itemization is definitely a subject you will want to cover with your accountant this tax season.
Assuming you qualify and are able to, we would recommend that you itemize on taxes. Standard deductions may be the easier route, but they will not save you nearly as much in deductions. If you have any further questions about tax deductions or tax services please feel free to give us a call at 516.794.5752.