Should I Itemize or Use Standard Deduction Tax Return

Budgeting / By Humbled Budget

Humbled Budget Team

With over 55 years of combine experience in the Finance/Tax Industries based in the United States, Our Team of Humbled Individuals' shares their wisdom gained through experience or technical knowledge acquired through Additional Education.

Table of Contents

Introduction

It’s that time of year again. I’m excited. Know you’re wondering: Should I itemize or not? It’s a valid question, as the answer will affect how much you owe in taxes.

If you itemize deductions, you’ll get more significant write-offs and pay less tax on your income. You should only take this route if it’s worth it to you.

Standard deduction

The standard deduction is the amount you can deduct from your taxable income for most expenses.

The idea behind the standard deduction is to make it easier for people who don’t have many expenses that can be deducted from their income.

The standard deduction in 2019 is $13,000 for singles and married couples filing separately $24,000 for heads of household, and $32,000 for married couples filing jointly (MFJ).

The amount is indexed annually to inflation. For example, in 2020, it will be $14,640 for singles or MFJs and $26,020 for heads of household.

You may also be eligible for a personal exemption if you are single or married, filing jointly with dependents on your taxes this year. However, remember that these two things don’t always go hand-in-hand; some claim both, while others choose one over the other.

Who can take a standard deduction? If you’re unsure if you qualify, here are some things to consider.

Are there any medical expenses that need to be paid out of pocket? Do they add up enough to outweigh all other deductions combined by at least 10%?

Does having children change your annual tax bill by more than 10%? Many would say yes because kids cost lots but keep reading before making rash decisions about what category fits best.

The standard deduction, in comparison to itemized deductions

The standard deduction is a predetermined sum of money. You can use it to reduce your taxable income. It is usually higher than the total of all your itemized deductions.

You may be able to deduct some of your expenses from your income if they are considered itemized deductions.

For example, you may deduct home mortgage interest and real estate taxes if you own your home or charitable contributions if you make them out of your pocket.

If the total value of these deductions exceeds the standard deduction amount for your filing status and age, then it may make sense for you to itemize instead of taking the standard deduction.

However, keep in mind that only certain expenses qualify as valid itemized deductions:

Medical expenses (including health insurance premiums) that exceed 7.5%* Home mortgage interest and points paid on the purchase

Do you pay state and local taxes?

If you pay state and local taxes, you may be able to deduct them. If you’re single, most of the time, this is only worth it if you are in the 10% or higher income tax bracket.

The state and local tax deductions significantly impact your federal income tax bill. For example, if your state income taxes were $6,000 and your combined national/state rate was 25%, those $6,000 would save $1,500 on your federal taxes.

That’s one reason people with high incomes can benefit from itemizing their deductions. It could mean thousands of dollars in extra cash for them each year.

However, that wasn’t always true! Before 2018 (when the new tax plan went into effect), there were some restrictions on how much state and local taxes are deductible from federal taxable income:

If filers lived in states with no personal income tax (like Texas), they couldn’t take advantage of this deduction since they didn’t pay any income tax anyway.

This meant that Americans living in these lower-tax states had less incentive to itemize their deductions than those paying higher rates elsewhere.”

Did you donate to charity?

Your charitable contributions would be tax deductible if you donated $250 or more to charity.

If you’re using the standard deduction, then only donations of $250 or more can be deducted. Still, if you itemize your deductions instead (and count the total amount paid for medical expenses), then even smaller-sized donations are deductible up to $500.

Did you have any out-of-pocket medical expenses?

Medical expenses that exceed 10% of your adjusted gross income are deductible. Some medical costs, such as doctor visits and prescription drugs, are deducted directly from your taxable income.

However, you may also be able to deduct the cost of transportation to and from medical appointments.

If you can itemize Schedule A deductions instead of the standard deduction, it’s best to compare. If you live in a disaster area approved by the government, government, government, federal government, and situation.

Do you live in a federally approved disaster area?

If you live in a disaster area declared by the federal government, you may be able to deduct some of your disaster-related expenses. You can remove the following:

Costs for damage to your home, property, and vehicle
Payment for food, clothing, and shelter
Expenses for medical care or dental care

Do you have any miscellaneous itemized deductions?

You can only deduct these if your total miscellaneous itemized deductions exceed 2% of your AGI. These include:

Medical bills are not covered by insurance or other sources. For 2019, the threshold is 7.5% of AGI ($1,600 for single filers and $3,300 for married couples filing jointly). If you’re age 65 or older, this threshold increases to 10%. If you’re blind and/or disabled: $3,000 (single) and $6,000 (married couple);

Tax payments made on your behalf (such as federal income tax withheld from wages); and charitable contributions made within the year;

The IRS says that most taxpayers who don’t itemize their returns should use the standard deduction instead of calculating their taxes using Schedule A.

Analyze your tax situation to determine which way is best for you

If you are single and have a high income, itemizing might be the best way. You may also consider itemizing if you live in a high-tax state (like New York or California).

However, if you’re married with an average income and live in a low-tax state like Arizona or Florida, using standard deductions may save you more money at tax time.

The IRS website has an online calculator that can help determine your best option based on these factors and other considerations such as whether your spouse itemizes deductions on her return and which version of TurboTax® is suitable for you: Standard vs. Deluxe vs. Premier vs. Home & Business?

Conclusion

While it’s understandable to be overwhelmed by the number of deductions available, we hope this article has helped you understand that there are plenty of ways to save money on your taxes.

With some research into which deductions apply to you and how much they cost, you can ensure that every dollar spent goes toward reducing your tax bill and not just so someone else can pocket it.