Choosing Your Deductions Carefully
by Bob Williams
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To hear a lot of people talk, you’d think that doing our income taxes is a matter of being forced into doing this or the other. But many times, we have choices to make that determine what our tax bottom line will be. One of those choices concerns just how we want to figure our deductions.
While you have one big choice – whether to take the standard deduction or to itemize – there are a few considerations that go into each choice. And knowing what each option entails can lead to easier – and wiser – choices.
The Standard Deduction
If you do not itemize your deductions, the basic standard deduction depends on your filing status:
- Single - $6,100
- Married Filing Jointly - $12,200
- Head of Household - $8,950
- Married Filing Separately - $6,100
- Qualifying Widow(er) - $12,200
The standard deduction is higher if you are 65 or older, or are blind. And if someone else can claim you as a dependent, that can limit the amount of your deduction.
If you would like to see what your standard deduction could do for you, use the IRS’ Interactive Tax Assistant Tool to help determine that bottom line.
The Itemized Approach
Itemizing deductions means adding up all your expenses for your proposed deduction. But there’s a bit of a catch: They have to add up to more than 10 percent of your Adjusted Gross Income (AGI). Less than that, and you have to use the standard deduction. That threshold used to be 7.5 percent, but that was boosted to 10 percent beginning in the 2013 tax year.
So, what qualifies for inclusion in itemized deductions? Generally, qualified expenses can include:
- Home mortgage interest
- State and local income or sales taxes (but not both)
- Real estate and personal property taxes
- Gifts to charities
- Casualty of theft losses
- Unreimbursed medical expense
- Unreimbursed employee business expenses
As with most things taxish, special rules and limits apply. Your best point of reference for deductions is IRS Publication 17, the owner's manual for taxes.
Before making your choice on your income tax forms, it’s a good idea to figure your deductions using both the standard and itemized methods – and see which works best for you. The one that results in the higher deduction is often your best choice.
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