Deciding Between Itemized and Standard Tax Deductions

Itemizing your deductions could lead to big savings

Personal income taxes
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Doing your federal income taxes is never any fun, and no one would blame you if you wanted to make the process as simple as possible. But choosing the path of least resistance — taking the standard tax deduction instead of itemizing — could cost you real money.

Yes, taking the standard deduction is certainly easier, and it might actually be a better option if you have a simple tax situation or you don’t own a home.

But before you make the decision, you should crunch some numbers. If you determine that itemizing is right for you, it could lead to substantial savings.

Itemizing vs. Standard Deduction

The standard deduction is exactly what it sounds like — a flat amount that you can deduct from your taxable income. The amount you can deduct is based on your filing status, number of dependents, and what year you’re filing the taxes for.

Meanwhile, when you itemize deductions, you have the ability to deduct the actual dollar amount of many different expenses. Some of these deductions come in the form of mortgage interest, property taxes, medical expenses, and more. If you totaled up all of your allowed deductions and the total you got was greater than the standard deduction, it would probably be wise to itemize.

What Expenses Can be Itemized?

Numerous expenses can be included. The most common expenses include:

    Should You Itemize?

    There is no right or wrong answer, and it ultimately depends on your situation.

    To determine if itemizing would be worthwhile for you, take a look at Schedule A of IRS Form 1040. On this sheet, you can list your itemized expenses, and then total them up to compare the amount to the standard deduction. If the itemized amount is greater, then you would want to itemize. If the total itemized amount is less than the standard deduction, you would not want to itemize.

    The largest deductions for most people come in the form of mortgage interest and property taxes, and in these situations, even a modest mortgage could put you over the standard deduction limit. Since this can total into the thousands of dollars over the standard deduction, the tax savings can be significant.

    While this can be a big deduction, keep in mind that just because you own a home, it doesn't necessarily mean the mortgage tax deduction is better than the standard deduction. You still have to crunch the numbers.

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