All taxpayers have two options when it comes to deductions. Either take the standard deduction or itemize. If a taxpayer claims the standard deduction, itemizing no longer becomes an option. The standard deduction is a fixed deduction amount that is determined by the taxpayer’s filing status. This tax season, the standard deduction amount is $12,400 for single filers, $24,800 for joint filers and $18,650 for the heads of household.
On the other hand, the itemized deductions don’t have a set amount. It all comes down to the deductible expenses of the taxpayer. The most common tax deductions are for medical expenses, retirement account contributions, mortgage interests, and state, local, and property taxes. Each of these tax deductions has their own income limits and qualifying amount.
For example, to deduct medical expenses, the amount of medical spending must exceed 10% of the AGI. This also includes the insurance premiums paid. Although you made medical expenses during the year, the total money spent on medical must exceed the threshold. Assume your adjusted gross income is $50,000 and you spent $6,000 on health insurance premiums. You can only deduct $1,000 of that $6,000.
The same applies to pretty much all the other itemized deductions. Learn more about the rest of the itemized deductions from our deductions page.
Which deduction should I claim?
Both itemizing and the standard deduction have their own pros and cons. Generally, you should always claim the standard deduction if your itemized deductions is less than the standard deduction amount. So either way, you need to find and calculate the itemized deductions that are available to you.
This is one of the reasons why we recommend filing income tax returns electronically. Regardless of the tax software of your choice, you will be able to automatically find the deductions you can claim. Once you have an estimate of the total itemized deduction amount, you can then decide which one to pick.
One thing we recommend if both are the same is to claim the standard deduction. This way, you won’t need to prove your expenses to claim the deductions. You can just claim the standard deduction and be done with deductions. After the deductions are set and done, the next step is to find the tax credits you can claim. Unlike deductions, tax credits reduce what you owe to the IRS, not the taxable income. Learn more about tax credits from here.