Understanding your tax deductions can be a tricky endeavor. Knowing which ones you’re eligible for, understanding the difference between standard and itemized deductions, and knowing which one will give you the biggest return—it’s enough to make your head spin. Don’t worry though, we’ve got you covered! Here is all the information you need in order to understand what standard and itemized deductions are, how they impact your taxes, and how to know which one is right for you.
What Are Standard Deductions?
Standard deductions refer to a set dollar amount that reduces the amount of income that is subject to taxation. This amount varies from year to year based on filing status (single, married filing jointly, etc.) The 2019 standard deduction amounts are as follows: $12,200 for single filers; $24,400 for married couples filing jointly; $18,350 for heads of households; and $12,200 for married individuals filing separately. These numbers increase slightly in 2020 due to inflation adjustments.
What Are Itemized Deductions?
Itemized deductions refer to expenses that can be used to reduce your taxable income. These expenses include state and local taxes (SALT), medical expense payments or insurance premiums not covered by insurance plans or Medicare/Medicaid, donations made during the tax year (up to 60% of income), mortgage interest payments (up to $750k of debt) or investment interest paid (up 10% of adjusted gross income). Your total itemizable deductions must exceed the standard deduction in order for them to be beneficial — otherwise it makes more sense just stick with the standard deduction.
How Do I Know Which One To Claim?
The decision between claiming a standard or itemized deduction largely depends on your individual situation — some people may find that claiming an itemized deduction is more beneficial than taking a standard deduction while others may find that taking a standard deduction works better for them. It pays off (literally!) to do some research before making any decisions so you don't miss out on any savings opportunities!
Some tips include: keeping track of all receipts throughout the year so if there's an opportunity you can take advantage of it when it comes time to file taxes; talking with a qualified tax professional who can help guide you through the process (Click here to book a call); and researching different tax credits/deductions available in your state or municipality as these could also have an impact on reducing taxable income.
Tax season can be stressful but understanding what standard and itemized deductions are can help make it less so! Knowing which ones are best suited towards your individual situation will save time and money come April 15th — hopefully this article has given you some insight into how they work and how they could benefit your return! If you have any questions about either type of deduction please don't hesitate to reach out — we're here to help answer any questions or concerns you may have about filing taxes! Good luck!