Standard deduction vs Itemized deduction- Which is better?

Tax deductions are popularly known to diminish your taxable earnings.  Lesser earnings mean that you incur a small tax bill. But, the main confusion here, for many taxpayers is how they can reduce their taxable income. In other words, what is the correct method to incur the shortest possible taxable earning level - is it with an itemized tax deduction or is it with standard tax deduction?

Tax preparers in Allan J Rolnick say that both these type of tax deductions are different from each other in a few ways. Your decision, as to the type of tax deduction you must opt for, depends on your individual situation and circumstances. That is, you can either itemize your deductions or claim the standard tax deduction, whichever reduces your tax the most. The Internal Revenue Service or IRS claims that most of the taxpayers employ the standard tax deduction method.

Let us have a look at both the types of tax deductions and see at the ways in which both of them differ from each other.

Standard tax deductions

The standard tax deduction refers to a fixed dollar amount, which lowers the earning on which you are taxed. This type of tax deduction can vary on the basis of your filing status. This means that for every filing status the standard tax deduction amount is different.

Moreover, if you are aged 65 years or older or if you are blind, then your standard deduction will be higher than other people. If you are the head of household or single, then the standard deduction will increase by $1,550. Additionally, if you are a qualifying widow(er) or are married, then your standard deduction will increase by $1,250. The standard deduction amount also changes as per the inflation every year.

Tax preparers in Forest Hills NY say that almost two out of every three taxpayers claim the standard tax deduction. Some of the features of standard deduction are as follows. It:

·       Eliminates the need to itemize your tax deductions, such as charitable donations and medical expenses

·       Lets you claim a deduction, even though you do not have any expenses that qualify you to claim itemized deductions

·       Enables you to avoid keeping receipts and records of your expenditure, in case the IRS inspects you

Allan J Rolnick tax preparers advise taxpayers that when they file for standard tax deduction, then they must notice the increase in the standard tax deduction amounts, which have increased in last few years. For instance, married couples who have been filing joint returns will notice that their standard tax deduction sum has increased substantially in the current filing years. This is mostly due to the inflation adjustments and permanent tax regulation modifications that are especially designed to ease the penalty of marriage. Furthermore, visually impaired and senior taxpayers can reduce their taxes through bigger standard tax deduction sums by just checking some of the boxes related to their taxes. This can mean that standard deduction can now appeal to a number of taxpayers.

Itemized tax deductions

Itemized tax deductions can also lower your taxable income. For instance, if you fall in the 15 per cent tax bracket, then every $1,000 of your itemized deductions will reduce up to $150 of your tax bill. Taxpayers can benefit by itemizing their deductions on the Schedule A of Form 1040, if they:

·       Had large, uninsured dental and medical expenses

·       Have itemized tax deductions that are more than the total standard tax deductions

·       Have paid real estate taxes and mortgage interest on their house

·       Had huge, insured theft losses or casualty (flood, fire, wind)

·       Had large, unreimbursed expenditure as an employee

·       Had huge, unreimbursed miscellaneous expenses

·       Made big contributions to qualified charities

However, in some cases, as Allan J Rolnick tax preparers say, the itemized tax deduction can total less than the standard tax deduction. In such situations, you can still itemize your tax deductions instead of claiming the standard tax deduction. This is mostly done when taxpayers want to pay less tax. And, this can happen only when you itemize your state returns and get a bigger tax benefit as compared to if you claim the standard tax deduction on your federal returns. However, if your AGI or Adjusted Gross Income from Line 37 of Form 1040 is more than some amount, them some of your itemized deductions are limited.

Tax preparers in Forest Hills NY advise taxpayers to be careful when filing for itemized tax deductions. They say that taxpayers should keep some things in mind. Firstly, not all the expenses are deductible from your earnings. For instance, in the health checkup section, if your age is 64 years or younger, only then those expenses that are more than 10 per cent of your estimated gross earnings can be subtracted. And, if you did not spend this much amount, then no expenses of yours will be deducted.

Verdict

Thus, it all depends on your current personal situation as to which tax deduction you must go for. Your tax deduction decision is not a permanent commitment. You can itemize your tax deduction in one of the years and claim the standard deduction the next year. The main thing is that you must choose the tax deduction method, which allows you to pay the smallest tax bill.

Allan J Rolnick tax preparers in Forest Hills NY can help you choose between standard or itemized deduction. Take help from them and allow them to help you in taking the right decision related to your tax deductions.