At this time of the year, forgetting about our income tax report might be tempting, leaving the stress for either the end of the year or for when the due date to file gets closer. However, we should always keep in mind our tax duties, as it will help us have a much simpler and easier tax season. One of the most common questions we get is whether taxpayers should opt for the standard or the itemized deduction, which often cause a bit of confusion among our clients. Here are some aspects to consider regarding each type of deduction and some of the advantages and disadvantages they bring.
To begin with, we should understand what the standard deduction is and how it works. To put it simply, the standard deduction is a reduction in your adjusted gross income for a fixed amount, and without any kind of proof required. This means that, if we opt for this deduction, the only aspect that will determine the amount is the filing status we choose:
- Single: $12,000
- Married, filing jointly: $24,000
- Married, filing separately: $12,000
- Head of household: $18,000
When we decide on the standard deduction, it might help us make the tax preparation process quite fast and easy, and this is why many taxpayers decide to request this deduction instead of the itemized deduction. Besides, another advantage of choosing the standard deduction is that it tends to get bigger every year or every two years, so we might want to compare the standard and the itemized deduction before we choose one.
On the other hand, opting for an itemized deduction might be more beneficial for some people, which is why we should always calculate both, and see which one is higher. Itemized deductions are expenses that the IRS allows to be decreased from your taxable income. There are many different deductions we can add, including medical expenses, education expenses, home office expenses, and the list goes on and on. Even when not all of them might be eligible for you, we recommend consulting with your tax professional in order to understand which may be useful for you.
One of the greatest advantages of opting to apply for the itemized deduction is that it might add up to an amount much higher than that of the standard deduction, since the more you can deduct, the less you would end up paying in taxes. Another advantage is that, as we mentioned above, there are many different deductions you can take advantage of, and with a bit of planning, you could make the majority of your expenses deductible, reducing your taxable income even more.
If you are not sure of which deduction would work better for you, remember that a tax advisor can offer the guidance that you need in order to make the best decision.