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Posted by Allan J Rolnick, CPA, CTC

Standard vs. Itemized Deductions- What’s the Difference?

During tax season, you’ll often hear phrases brought up in conversation that you’re not familiar with.  Two of the most common and essential terms that you should familiarize yourself with are the definitions of “standard deduction” or “itemized deduction”.  Knowing which category you fall into is a large part of responsible tax filing, and can make a huge difference in your refund, or what you owe the government after filing.

Firstly, understanding what a standard deduction entails is vital to making the decision of whether or not you should itemize.  When related to filing your taxes for the previous year, a deduction is the amount allowed to you for non-taxable income.  In other words, it is an allowance to not be taxed for certain parts of your gross income.  How much is deducted is based on many variables, and the IRS calculates an estimated total of qualifying expenses for each individual or family per year based on statistics and averages.  This is the “Standard” deduction, and it’s meant to represent what the average American would spend on specific items that the IRS feels should not be taxable, or should be allowed to be deduced from taxable income.  Anyone filing taxes can claim this deduction, with few exceptions. 

The exceptions for using the standard deduction are as follows:

  1.  A married individual filing as married filing separately whose spouse itemizes deductions
  2. An individual who was a nonresident alien or dual status alien during any part of the year (there are exceptions to this- please see your local C.P.A. for more assistance)
  3. An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period
  4. An estate or trust, common trust fund, or partnership

In the instance that a standard deduction is not possible, or would benefit you less than an itemized deduction, you will want to calculate your qualifying expenses for the year.  Each expense that qualifies for deduction is allowed a certain percentage, which actually gets deduced from your total taxable income.  The percentage in each category is then totaled, and the result is called the itemized deduction.

In order to benefit financially from an itemized deduction, you must have a total of qualifying expenses that exceeds your standard deduction.  As mentioned previously, the IRS allows for you to deduct a certain percentage of your qualifying expenditures throughout the year.  Such expenses include, but are not limited to, medical care, work mileage, mortgage interest, property taxes, charitable contributions, political contributions, and work uniforms.  If you’ve had substantial expenses in any of these categories in the past year, you may be eligible to itemize your deduction.

In order to make sure you get the best deduction for your expenses (which results in a larger return for you), it is important to seek a professional’s counsel.  Each category in an itemized deduction has its own set of rules, qualifications, and proof requirements.  Not knowing these before filing can have serious consequences, and could ultimately result in your needing to return money to the IRS after investigation.  This could be money that you’ve already received and spent, unaware that you’ve made a mistake.  

For example, if you wish to claim work mileage because you travel frequently for your job, there are specific rules that apply.  You are not able to claim miles used to commute to and from work, so you must have an office or primary location that you factor into your total mileage for the year.  In addition, you are claiming an average gas total per non-commuter mile, which usually lands into the .52-.53 cent category.   Finally, you have to have proof that these miles were traveled, in the form of receipts or a mileage log.  Consulting a professional the year before you begin claiming mileage is an excellent way to ensure that you are familiar with the associated rules and acceptable forms of proof, so that you may keep track of these and itemize the following year during tax season.

However involved itemizing your expenses throughout the year may be, the advantages of itemizing are substantial.  Not only do you have a clear record of your expenditures throughout the year, but itemization can mean the difference of up to thousands in your tax refund.  The cost of hiring a professional to ensure that you are filing your deductions properly is minimal to the benefits you can receive.  That’s why understanding which category you fall into is crucial to filing your taxes efficiently and responsibly.

Allan J Rolnick, CPA, CTC
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