Standard vs. Itemized Deduction: Which is Best for Your Bottom Line?
Tax deductions are one area where the IRS gives you the option to take a shorter route when completing your tax return. You can opt for a standard deduction instead of itemizing each one on your return.
But is it even worth it to itemize your deductions when can you just apply the standard deduction and call it a day?
Let’s take a look at the pros and cons of both options.
As the term implies, itemized deductions are expenses taxpayers can list on their tax returns to lower their taxable incomes. The IRS considers things like mortgage interest, charitable donations, state income taxes and even some medical expenses eligible deductions.
Believe it or not, some gambling losses even qualify as a deduction. That’s not an excuse to go out and blow your savings on a rollicking game of Texas Hold ’em, though.
Itemized deductions allow you to claim and deduct more expenses than simply taking a standard deduction. If your itemizations add up to be significantly higher than the standard deduction, you may not have to pay any taxes at all.
The downside to itemizing is that it takes more time and paperwork than just grabbing the standard deduction. The good news is that most popular tax preparation software programs will run the numbers for you once you enter the data — no pencil, paper and calculator needed.
If you’re not sure what qualifies as an itemized deduction, the IRS has an interactive list for you to consult.
The standard deduction is a specific figure set by the IRS that taxpayers may use instead of itemizing each deduction. Your filing status determines the exact deduction amount.
The standard deductions for the 2016 tax year are:
- Single: $6,300.
- Married Filing Jointly: $12,600.
- Married Filing Separately: $6,300.
- Head of Household: $9,300.
- Surviving Spouse: $12,600.
This interactive quiz at the IRS website helps you figure out the amount of your standard deduction.
For the most effortless approach to tax preparation, you’ll want to go with a standard deduction. You don’t need to understand anything about tax law or make lists of qualified deductions. Just plug in the number that applies to you and move on.
On the other hand, you may want to skip the standard deduction in favor of itemization if it means you’ll lose out on the ability to factor things like mortgage interest or other eligible deductions into your tax return.
Whichever option you choose, make sure you aren’t leaving money on the table by doing a quick comparison of numbers before deciding.
Your Turn: Are you itemizing your deductions this year or simply taking the standard amount?
Lisa McGreevy is a staff writer at The Penny Hoarder. She likes bringing you this information, but she is not a tax preparer, and this is not legal tax advice.