Itemize Deduction or Standard Deduction?
Whether to apply the standard deduction or itemized deduction method on a tax return is a confusing decision for most taxpayers. Have no fear, we are here to make it easy for you! The general rule of thumb is, if the standard deduction amount for your filing status is greater than your total itemized deductions, then you should take the standard deduction. Otherwise, you should claim itemized deductions on your tax return. You cannot claim the standard deduction while itemizing deductions in the same year.
So how do you decide which is better for you?
When you prepare your return on eFile.com, we will calculate which is better for you and which gives you the most tax advantages (the largest refund or the lowest taxes owed) for your tax return. Once you have prepared your return, you can view the results and see which method was chosen for you. If you need to change it for other reasons, it is simple to change it as well.
- On your 1040 individual income tax return each year, you can use either the standard or itemized deduction method - you cannot use both.
- You should file taxes if you make more than the standard deduction.
- Use eFile to determine the deduction method that benefits you the most.
Standard Versus Itemized Deductions
With tax reform and the increased standard deduction amounts, the standard deduction is the best choice for a lot of folks. If you want more information about whether to claim the standard deduction or itemized deductions, read on or start your return on eFile.com and see the actual results based on your personal tax situation.
The standard deduction is a dollar amount that directly reduces your taxable income; everyone who is not a dependent is entitled to this deduction. It is a portion of your income which is not subject to tax, thus reducing your tax bill. The standard deduction amounts for any given tax year are based on filing status and age and are updated each year for inflation; see the current standard deduction dollar amounts.
You cannot claim the standard deduction if any of the following situations apply to you:
- You claim itemized deductions.
- You are filing as married filing separately and your spouse itemizes (you must both either itemize or claim the standard deduction).
- You are a nonresident alien, dual–status alien, or an individual who files tax returns for periods of less than 12 months.
Your standard deduction may be limited if you are claimed as a dependent on someone else's tax return; for example, if you are claimed as a dependent on your parents' tax return. Your deduction as a dependent is less than the standard deduction, but you generally pay less taxes on your income if you are someone's dependent since you do not earn enough money to support yourself (this is one of the factors that determines whether someone can be claimed as a dependent).
Related: Calculate your income tax bracket based on your income and filing status.
You can still claim above-the-line deductions while still claiming the standard deduction. This includes expenses such as self-employment deductions via Schedule C, educator expenses, and the student loan interest deduction.
You may ask yourself:
How do I know if I need to file? Do I need to file if I make less than $5,000? $10,000? Should I file if I make less than the standard deduction? This answer can get complicated as it depends on the type of income you have - taxable income comes in various forms as does nontaxable income. Start up this free tax tool to determine if you need to or may want to file a tax return. Generally, you should file a tax return if you make more than the standard deduction for your filing status. If you have taxable income with taxes withheld via Form W-2, you should always file a return.
Standard Deduction Additional Amounts
There are additional standard deduction amounts based on the following factors:
- Age: You can claim the additional standard deduction amount for age if you are 65 or older on the last day of a tax year, except if your birthday is January 1. For tax purposes, you are 65 or older on December 31 of the tax year or January 1 of the following year.
- Blindness: You can claim the additional standard deduction amount for blindness if you are legally blind on the last day of a tax year. Therefore, if you are age 65 and legally blind, you would be entitled to a basic standard deduction and two additional deductions.
- Disaster loss: If you had a disaster-related casualty loss in a presidential-declared disaster area, you may add an additional amount to your standard deduction.
See the exact standard deduction amounts here.
If you are still not sure which tax deduction to use on your tax return, eFile.com can make this easy for you. When you prepare your tax return on eFile.com, based on the information you provide, we will calculate your standard deduction amount.
Itemized deductions, claimed by individual taxpayers via Schedule A and Form 1040, are types of expenses that you have during the year that the IRS considers to be tax deductible. These include:
Itemized deductions reduce your taxable income by a dollar amount and thus reduce your total taxes. You should itemize if the total amount of your itemized deductions is more than your standard deduction amount - eFile will determine this for you. Itemizing your deductions works by adding your deductible expenses to Schedule A - eFileIT - and adding them together to calculate your total deductible expenses for the tax year.
Itemized deductions may be ideal for you if:
- You have high real estate expense from mortgage interest or property taxes.
- You pay high state and local taxes and/or state taxes.
- You had an expense medical emergency during the year, like a car accident.
- You donated a large sum of money to a qualified charity.
- You were a victim of a substantial loss, casualty, or theft,
There is no limitation on itemized deductions based on your adjusted gross income. However, there are other limitations that may affect the contents of your Schedule A, such as state and local taxes (SALT), which is limited to $10,000.
Itemizing your deductions does not include deducting expenses directly related to your business or rental income expenses. You can make both of these deductions when you file your return. These are reported separately on Schedule C (self-employment) and Schedule E (rental) - eFile.com will help you will in these forms and e-file them with your return.
How can you be sure which deductions are available for your taxes? What if you claim a deduction that is not valid? When you prepare your return on eFile.com, if itemizing deductions is more beneficial for you, we will automatically prepare and generate the Schedule A which is used to report itemized deductions on your return. The eFile Tax App will only ask you about currently available tax deductions so you do not prompted to enter an expired or invalid tax deduction. See a full list of IRS forms and schedules, such as Schedule A, that may be helpful when filing your taxes.
Which to Choose?
Since the Tax Cuts and Jobs Act in 2018, the standard deduction amounts greatly increased by nearly doubling them. As such, claiming the standard deduction is not only much simpler, it also generally benefits most taxpayers more than itemizing deductions. In order to itemize, you need to keep record of your deductible expenses during the year before adding them to your return.
How to claim the standard deduction? The standard deduction is applied to your return by entering the figure on your Form 1040 which eFile will do for you by default. eFile will apply the itemized deduction method if it benefits you more.
When you work through the tax interview within your eFile account, you will be able to add all your deductible expenses. In real time, eFile will determine the most beneficial method for you as you enter data. This way, you always get the highest refund or lowest taxes owed guaranteed.
Check out more tax deductions you may qualify to claim on your tax return and don't overlook eligible tax credits.
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