What’s the Difference?
When clients come to our office to file their tax return, we often get asked whether it is more beneficial for them to itemize deductions or take the standard deduction. You should compare both methods and use the one that gives you the greater tax benefit.
Here are six facts to help you choose:
1. Calculate your itemized deductions by adding up the cost of items you paid for during the year that you might be able to deduct. Expenses include:
- Home mortgage interest
- State income taxes or sales taxes (but not both)
- Real estate and personal property taxes
- Gifts to charities
- If your expenses are over the minimum threshold, you can also include:
- Medical and dental expenses that insurance did not cover
- Unreimbursed employee business expenses
- Cost of preparing your tax return
2. Know your standard deduction. If you do not itemize, your standard deduction amount depends on your filing status. For 2012, the basic amounts are:
- Single = $5,950
- Married Filing Jointly = $11,900
- Head of Household = $8,700
- Married Filing Separately = $5,950
- Qualifying Widow(er) = $11,900
3. Apply other rules in some cases. Your standard deduction is higher if you are 65 or older or blind. Other rules apply if someone else can claim you as a dependent on his or her tax return.
4. Check for the exceptions. Some people do not qualify for the standard deduction and should itemize. This includes married people who file a separate return and their spouse itemizes deductions.
5. Choose the best method. Compare your itemized and standard deduction amounts. You should file using the method with the larger amount.
6. File the right forms. To itemize your deductions, use Form 1040, and Schedule A, Itemized Deductions. You can take the standard deduction on Form 1040.
For more information about allowable deductions, contact your tax preparer today.