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Standard vs. Itemized Deduction Explained

Itemized and standard deductions can be confusing – especially if you are relatively new to filing a tax return.

Some people try to itemize when they are better off using the standard deduction. On the other hand, some taxpayers avoid itemizing because it seems too difficult — even when itemizing deductions could save them money.

Get the best tax savings from itemizing or taking the standard deduction with these tips.

You can’t deduct both

The standard deduction is a set amount that the Internal Revenue Service (IRS) lets you deduct from your taxable income. Factors like your filing status and age determine the amount.

However, instead of taking the standard deduction, you can choose to itemize your deductions on Schedule A.

Some people can’t take the standard deduction

If you are married filing separately and your spouse itemizes deductions, you can’t take the standard deduction.

You also cannot itemize when you file for a tax period of less than one year. That’s also true if you were a nonresident alien or dual-status alien during the year.

You must generally have significant deductions to benefit from itemizing

If you have only a few small deductions, you probably shouldn’t itemize. You’re better off using the standard deduction.

Don’t worry about gathering up receipts for itemizing deductions unless you may have more than these standard deduction amounts:

2017 Standard Deduction Amounts:

Filing Status Standard Deduction
Married Filing Jointly $12,700
Qualifying Widow(er) with Dependent Child $12,700
Single $6,350
Head of Household $9,350
Married Filing Separately $6,350

At the end of the tax year, anyone aged 65 or older can take additional standard deductions. Blind individuals can as well.

High income can limit deductions

If your adjusted gross income is over a certain threshold, your allowable itemized deductions are reduced. The limits are $261,500 if you file as Single; $313,800 for Married Filing Jointly or Qualifying Widow(er); $156,900 for Married Filing Separately; or $287,650 if you file as Head of Household.

The standard deduction is not reduced for high-income earners. However, if you are subject to the Alternative Minimum Tax, you may be better off taking itemized deductions.

Some deductions only count after they reach a “floor”

If you have certain itemized deductions, such as medical expenses, you may expect to benefit from itemizing your deductions.

However, medical expenses only improve your tax bill when they are quite substantial. You can deduct most medical expenses only to the extent they exceed 10 percent of your adjusted gross income. If you or your spouse are 65 or older at the end of the tax year, it’s 7.5 percent.

The cost of self-employed medical insurance is an exception, however. You can deduct premiums for self-employed health insurance as an adjustment to income – even if you do not itemize deductions.

Personal exemptions are extra

Each personal exemption reduces your taxable income by $4,050 (2017). That’s in addition to either the standard deduction or itemized deductions.

If in doubt, enter your itemized deductions in TaxAct.

It’s not difficult to find and enter your itemized deductions in tax software. For major itemized deductions, such as home mortgage interest expense, you’ll receive a form in the mail showing how much to enter.

Don’t forget charitable contributions, including non-cash contributions, when you tally your deductions. Also, if it applies to you, enter the information to take a sales tax or state income tax deduction. Your deductions can add up rather quickly.

When using DIY tax software like TaxAct, the program calculates your standard deduction and compares it to your allowable itemized deductions. It then recommends which method is best for your tax situation, and lets you decide which to claim.

Don’t feel bad if you don’t have enough deductions to itemize

Some people are disappointed if they can’t itemize. They may have bought a house and heard they would save on taxes the next year. But, it turns out their total itemized deductions are still less than the standard deduction amount.

Don’t get upset if that’s your situation. It’s not that your itemized deductions did nothing for you. The standard deduction is simply better this time around. That’s nothing to feel bad about.

About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

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