- Days left

Should You Take the Standard or Itemized Tax Deduction?

The standard deduction might be less stressful, but the itemized deduction might save you a larger chunk of change.

×
Should You Take the Standard or Itemized Tax Deduction?
Getty Images
By Jennifer Calonia

Tax return season is in full swing as taxpayers anticipate a large tax return refund or simply hope they don't owe Uncle Sam too much money after tax liabilities are calculated. With the April 15 deadline drawing closer, those who have yet to file their taxes have a key decision to make before undergoing the tax return process.

Tax filers have the option to accept the pre-established federal standard deduction on their return or choose to itemize each allowable expense that can be deducted from the 2013 year. A tax deduction reduces the taxable income you're liable for and each option has its benefits.

What Is a Standard Deduction?

A standard deduction is a blanket option offered to taxpayers, which might give qualified filers the advantage of lowering the amount of their taxable income.

Internal Revenue Service standard deductions are as follows for a majority of taxpayers:

Single or married filing separately $6,100
Married filing jointly or qualifying widow with dependent child $12,200
Head of household $8,950

This general deduction makes the already-grueling tax preparation process much simpler and takes less time for those who are too busy to pull up year-old receipts and paperwork. While the standard deduction may be a less stressful approach to completing your tax return, it isn't a viable option for everybody and might not be the most rewarding option for your bank account.

What Is an Itemized Tax Deduction?

Unlike the standard deduction, itemized deductions result in different taxable income amounts from person to person. Those who qualify for the standard deduction have the leeway to choose the itemized route; however, individuals who aren't eligible for the standard deduction can only itemize their tax deductions.

Filers who fall into the following categories cannot take the standard deduction:
  • You are married, but filing separately and your spouse itemizes deduction.
  • Your tax period is for fewer than 12 months due to a shift in your accounting methods.
  • You were considered a nonresident alien or dual-citizen during 2013.
Only certain expenses are allowed to be itemized for tax deduction purposes, which include:
  • Expenses for medical care.
  • Interest and taxes paid on your home.
  • Business expenses that have not been reimbursed.
  • Uninsured theft casualties.
  • Charitable donations.
A combined itemized deduction amount that is larger than the standard deduction amount can save money for those willing to put in the time and effort to crunch the numbers.

Is Itemizing Your Tax Deduction Right for You?

If you are among the group of filers who have a choice when it comes to how to claim your tax deduction -- and really, even if you don't -- you'll have to brush up on your arithmetic to determine if itemizing is financially beneficial.

Taxpayers whose adjusted gross income exceeds certain thresholds might have a limit imposed on the amount they can deduct from their taxable income. You're subject to this itemization limit if:
  • You earned more than $300,000 and are married filing jointly or a widower.
  • Earned more than $275,000 as the head of household or more than $250,000 if single.
  • You're married, filing separately, and earned more than $150,000 last year.
Individuals who exceed AGI limitations are faced with deduction limits for expenses such as charitable giving, paid taxes and interest, as well as business-related expenses. However, deductions for qualified medical and dental costs, losses to personal and income-generating properties, investment interest and gambling losses aren't limited.

The Government Accountability Office says as many as 2.2 million tax filers overpay on their taxes by as much as $610 each year because they choose the standard deduction over the itemized option.

So take the time to gather your calculator and tax paperwork and compare how much money an itemized deduction can save you compared to the standard deduction. You'll be able to brave the tax season and come out smarter and more financially stable on the other side.

Jennifer Calonia writes for GoBankingRates.com, a source for online banking, the best CD rates, savings account rates, personal finance news and more.


More from U.S. News


Ways to Avoid an IRS Audit

Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

What is Inflation?

Why do prices go up?

View Course »

TurboTax Articles

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Deducting Summer Camps and Daycare with the Child and Dependent Care Credit

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

What Is Schedule H: Household Employment Taxes

If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.

Add a Comment

*0 / 3000 Character Maximum