Posted by Jim McClaflin, EA, NTPI Fellow

Itemizing versus Standard Deduction

Itemizing versus  Standard Deduction

For many taxpayers, there are pros and cons to taking the standard deduction versus itemizing deductions. Each does offer benefits, but they also may not be the best option for your individual situation. Working with your tax professional or accountant, such as Jim McClaflin, EA in GrimesIA, you can determine which option is the best for your unique circumstances. Below is an overview of each type of deduction, including some of their benefits.

Standard Deduction

This particular deduction is determined solely by filing status. Single filers will get a $6,300 deduction in 2015, which is an increase over last year’s deduction. Joint filers have also seen their standard deduction increased for 2015 to $12,600. If you are the head of the household, then their deduction has been increased to $9,250. Still, there are various aspects depending on your status as a taxpayer, including age or potential disability.

For those who are claimed as dependents on another taxpayer’s return, there are some additional considerations. If they earned income, you want to add that up and then add an additional $350. That total may be higher than the deduction of $1,050, so then the income plus $350 should be taken as the deduction.

When should you just take the standard deductions? Typically, this is when the itemized deductions are not greater than the standard deduction. Working with your tax professional or accountant, you can determine which choice works best for your filing situation.

Itemizing Deductions

When it comes to itemizing your deductions, you can take advantage of the Schedule A to determine if you will receive a higher deduction for itemizing. Working with your tax professional you can determine what you are eligible to itemize. Below are a few of the items most individuals itemize on their Schedule A.

  • Student loan interest payments
  • Mortgage Interest payments
  • Property taxes
  • Mortgage insurance premiums
  • State and local taxes
  • Charitable donations
  • Medical expenses

Then there are itemized expenses that must reach over 2% of your AGI to be eligible for deduction. A few of these items are listed below:

  • Union or professional organization dues
  • Protective work clothing
  • Tools and supplies for work
  • Payment for having your taxes done
  • Safe deposit fees
  • Legal fees for protecting or producing taxable income
  • Depreciation on your computer and cell phone if used to track taxable investments or used as part of your job
  • Expenses incurred in looking for a job, such as resume costs, career counseling or employment agency fees
  • Tuition for classes to advance in your career or improve your skill set

Deductions also are classified based on what is not subject to the 2% rule. These are essentially guaranteed tax savings, because you can take advantage of them even in smaller amounts. Here are just a few of these deductions:

  • Amortization bond premium – The amount you pay over face value of taxable bonds because they are paying higher than current market interest rates. However, determine what type of bonds you own, because tax-exempt bonds are not eligible for the deduction.
  • Gambling losses – The only thing to keep in mind is that this deduction cannot exceed the gambling winnings that you reported in income. For example, if you only win $300 but have lost $1,000, you can only claim $300 in losses.

  • Federal Estate Tax on Income in Respect of a Decedent – This deduction has come into play as taxpayers inherit money from IRA or company retirement plans. The taxes for this income are not included on the decedent’s final tax return, but the beneficiary is taxed on the income. Working with your tax professional, you can determine what you can claim as a deduction. In addition, this deduction can also cover an estate that paid federal taxes. Essentially, if the estate paid federal taxes on an IRA, as you draw the money out, you can take the deduction for those taxes previously paid.

As you can see, itemizing provides the option of getting tax benefits for all of your various expenses throughout the year. This can assist you in reducing your tax liability. Still, if you do not have enough deductible expenses, the standard deduction can still provide a quality option to reduce your tax liability. Your tax professional can assist you in determining which option will work best for you!

Jim McClaflin, EA, NTPI Fellow
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