Should I use Standard or Itemized Deduction?

There are two primary types of deductions, known as the standard deduction and itemized deductions. A given taxpayer can only use one or the other on their tax return.

The purpose of either type of deductions is to provide amounts that a taxpayer can subtract from their gross income, thereby reducing the amount of the taxpayer's income that is subject to income tax and thus the overall tax due for the taxpayer. However, that is where most of the similarities end between these two types of deductions.

Understanding Standard Deductions

The standard deduction is available for most taxpayers to use. The standard deduction is defined each year by the IRS and varies depending on the type of filing status used by the taxpayer. For the 2013 tax year, which means they will apply to tax returns due April 15, 2014, the standard deductions are as follows:

  • $6,100 for individual
  • $8,950 for head of household
  • $12,200 for married filing jointly
  • $6,100 for married filing separately
  • $12,200 for qualifying widow(er)

Typically, for taxpayers who qualify for it, married filing jointly will provide a lower tax due than does the head of household or individual filing statuses. Likewise, the head of household filing status will usually provide a lower tax due than does the individual filing status.

Individuals who are blind, over the age of 65, or both receive another standard deduction in addition to that received based on their filing status. For the 2013 tax year, the additional standard deduction for being blind or over the age of 65 is $1,500 for those using the single or head of household filing statuses or $1,200 for those using the married filing jointly, married filing separately, or qualifying widow(er) filing statuses.

Understanding Itemized Deductions

Contrary to the standard deduction, itemized deductions are based largely on expenditures made by the taxpayer during the tax year. There are various types of itemized deductions including but not limited to the following:

  • Medical, dental, and certain other healthcare expenses to the extent they exceed 7.5 percent of the taxpayer's adjusted gross income
  • State and local taxes, including income, vehicle, and property taxes
  • Mortgage interest and points
  • Charitable contributions made to a qualified organization
  • Business use of a personal home or car
  • Business expenses for travel and education not reimbursed to the taxpayer by their employer
  • Certain other business expenses to the extent they exceed 2% of the taxpayer's adjusted gross income
  • Gambling losses to the extent they offset gambling winnings
  • Casualty and theft losses to the extent they exceed 10 percent of the taxpayer's adjusted gross income

Taxpayers should calculate their itemized deductions and compare that to their standard deduction. Taxpayers have the option to take the deduction that is largest, which will therefore minimize the amount of federal income tax owed by the taxpayers.

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