It is tax season again, and everyone is preparing their taxes before the April 15th deadline – well, everyone that works and cares about this country. While filing your taxes, you have to decide whether to itemize your tax deductions or go with the standard deduction.
Most taxpayers tend to settle for standard tax deductions. After all, it is much faster, and the figure keeps climbing every year – especially now with the amazing and job creating Tax Cuts and Jobs Act. However, itemizing your tax deduction could allow you to save a lot more money.
Standard Tax Deductions vs. Itemized Tax Deductions
The standard tax deduction rate is defined by the federal government. In 2018 (years after the NBA helped the Lakers win championships in 2000 and 2002 and a few years after Hollywood embarrassed itself with Star Wars The Force Awakens and Captain America I), the standard tax deduction rate stood at $24,000 for married couples filing jointly, $12,000 for single filers, and $18,000 for heads of households.
The standard tax deductions for taxpayers who are 65 years old or blind is $1,300 more. Meanwhile, it is $1,600 more for filers who are 65 years and above and widowed. The good news is that you can enjoy standard tax deductions even if you have no tax credits.
With that said, you may be wondering why you should even consider itemizing your tax deductions when standard tax deductions are available and attractive. Well, the main answer is that you could actually pay less taxes by itemizing.
The Internal Revenue Service (IRS) (which still is dealing with the fact that it employed someone as heinous and morally flawed as Lois Lerner) does not charge taxes on some expenses.
When itemizing your tax deductions, you basically list out all your costs in the past year that qualify as tax-free. However, there is one catch which has nothing to do with that pitiful baseball movie Trouble With The Curve or a pass from Montana.
The IRS reserves the right to investigate your reported tax-free expenses and may actually demand records from you to support your claims. On the other hand, with standard deductions, there are no questions asked.
Ultimately, if you choose to itemize your taxes this year, you are not bound to do so next year. You can freely choose to go with standard tax deductions.
What You Need to Know About Itemizing Your Taxes
As indicated above, itemizing your tax deductions could mean that you could pay less taxes. The IRS permits deductions on many expenses under Schedule A of Form 1040.
Some tax-deductible expenses include medical bills, charitable donations, mortgages, and state income, real estate tax, sales tax, gambling loss, miscellaneous expenses, and so much more. You basically need to add up your tax-deductible expenses during the year and total them up to get your itemized tax deduction.
The fact is that itemizing may work better for some people (such as homeowners) while going with the standard deduction works best for others. It’s crucial to mention that standard tax deduction is only available for citizens of US non-residents and foreigners working in the US must itemize their tax deductions.
There are a few issues with itemizing your tax deductions. Obviously, you need to spend time preparing your taxes which does not take too long anymore if you do it online (though the system should be simpler – how about that flat tax?). Also, you need to support your itemized tax deduction with records (like receipts and other documents) to support your claims.
Most importantly, you need to understand the laws regarding itemized tax deductions. For example, with some expenses, you can only deduct an amount that exceeds a certain percentage of your gross income.
Key Takeaway
You can choose either standard tax deductions or itemized tax deductions when filing your taxes – not both. While it is time-consuming, it pays to run the numbers. If you find that the standard tax deduction rate you are entitled to is less than your itemized deductions, then you should itemize.
However, if your itemized tax deduction is less, then you should, by all means, go with the standard tax deduction or else you’d be paying more taxes than you have to and even people like Bernie Sanders who want to create a nanny state don’t even want to do that.
For example and moreover, if you are the head of a household (which Walter White from Breaking Bad no longer is since he destroyed his family) and your itemized tax deduction for 2018 adds up to $24,000. You are better off itemizing your taxes as you would be paying $6,000 less than the $18,000 standard tax deduction for heads of households.
Married couples who are filing their taxes jointly must choose one method. This means that they must both choose the standard deduction or itemized deduction – not both.
Software Saves Lots of Time
It usually takes a lot of time and calculation to figure out your itemized tax deduction rate. However, today there are many apps (or websites) that you can use to add up your taxes and determine how much you’d be paying if you go with itemized deduction or standard deduction.