Difference between Itemized and Standard deductions

Understanding the difference of itemized and standard deductions and when to use them, respectively, is one the most important parts of filing your income tax return.

Below we will explore the differences between the two and how you go about choosing which one you will use.

   

Standard Deductions

The amount of the standard deduction varies from year to year and depends on your filing status and age. For 2013 the standard deduction was:

  • $12,200 if you are married filing jointly or a qualifying widow or widower.

  • $6100 is you are single

  • $8950 is you are head of household

  • $6100 if you are married filing separately

 

An additional standard deduction is permitted if you are over the age of 65 and or blind. These numbers change, so for the upcoming year, you'll want to consult the U.S. tax guide to determine where you fall.

 

There are limitations to the standard deduction as well. If you are married and are filing separately, you cannot use the standard deduction if your spouse itemizes their deductions. The standard deduction also cant be claimed by someone who is not a resident or who is a dual status alien. Also, a lower standard deduction of $1000 is allowed to dependents with only unearned income.

 

Itemized Deductions

In comparison to standard deductions, computing itemized deductions are drastically more complex. All you have to do to compute your standard deduction is fine the line on the page. Itemizing deductions requires a lot more work, but, if you have good reason to itemize, can be well worth the time put in. 

 

You should itemize your deductions if your total itemized deductions exceeds the standard deduction offered for your filing status. The following are allowable itemized deductions:

  • Medical expenses to the extent that the expenses exceed %10 of the taxpayers AGI

  • State and local taxes paid (income taxes, vehicle registration license fee, property taxes)

  • Mortgage Interest expense on debt incurred in connection with up to two homes, though subject to limits

  • Investment interest

  • Charitable contributions to permissible entities.

  • Casualty and theft losses, to the extent that they exceed 10% of AGI

  • Gambling losses, but only to the extent of gambling income. Basically, you cant deduct a loss.

 

These are important things to know regardless of who you are. Everyone has to file an income tax return, and knowing how to go about it is one of the essentials to tax basics.

 

 

 

 

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