Wednesday, March 19, 2014

Standard Deduction vs Itemized Deductions: 5 Tips to Help You Decide

When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit. Here are  tips to help you choose.

  1.Figure your itemized deductions. Add up deductible expenses you paid during the year. These may include expenses such as:

  •  Home mortgage interest 
  •  State and local income taxes or sales taxes (but not both) 
  • Real estate and personal property taxes 
  •  Gifts to charities 
  •  Casualty or theft losses 
  •  Unreimbursed medical expenses 
  •  Unreimbursed employee business expenses 

 2.Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax for more details.

 3.Know your standard deduction. If you don’t itemize, your basic standard deduction for 2013 depends on your filing status:

  •  Single $6,100 
  •  Married Filing Jointly $12,200 
  •  Head of Household $8,950 
  •  Married Filing Separately $6,100 
  •  Qualifying Widow(er) $12,200 
 Your standard deduction is higher if you’re 65 or older or blind. If someone can claim you as a dependent, that can limit the amount of your deduction. Check the exceptions. Some people don’t qualify for the standard deduction and therefore should itemize. This includes married couples who file separate returns and one spouse itemizes.

 4.File the right forms. To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

 5.File Electronically. You may be eligible for free, brand-name software to prepare and e-file your tax return if your adjusted gross income is less than 58,000. IRS Free File will do the work for you. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Otherwise, you may file electronically with commercial software such as TurboTax or H&R Block, or through a paid preparer.

No comments: