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Itemizing vs. Standard Deduction

Taxpayers typically choose to either itemize their deductions or take the standard deduction when handling their taxes. However, it’s a good idea to review both methods to calculate which one is best to reduce your tax liability. This can be particularly important if you experienced major changes in your life such as switching jobs, moving, the birth of a child, divorce, etc. during the tax year in question.

Itemized Deduction

When you itemize your deductions, you reduce your taxable income by deducting every allowable purchase made throughout the year. Not all expenses can be deducted, but if you have many allowable expenses, you may want to consider itemizing.

Some of the common expenses that you can deduct are:

  • Unreimbursed medical and dental expenses
  • Home mortgage interest and points
  • Charitable gifts
  • Casualty or theft losses
  • State and local income tax, or sales tax (not both)
  • Real estate and property taxes
  • Unreimbursed employee business expenses

You will benefit from itemizing your deductions if you have large expenses for any of the items above. You may itemize your deductions on Form 1040, Schedule A.

Standard Deduction

When you take the standard deduction, you reduce your taxes by a fixed-dollar amount. The standard deduction can be claimed according to your filing status. You can use Forms 1040, 1040A or 1040EZ when taking the standard deduction.

For 2015, the IRS announced the standard deduction. Here are the tax brackets for individuals filing as single and couples filing as married filing jointly:

tax brackets for single tax payers

Single Individuals

tax-brackets-for Married-Filing Jointly

Married Filing Jointly

Courtesy: Forbes

The standard deduction is the preferred method for two out of every three taxpayers. It is easier to calculate than itemizing and allows you a deduction even if you do not have qualified expenses. The standard deduction prevents you from having to keep receipts and records of items you purchased throughout the year. If you do not have any large expenses to itemize, then the standard deduction may be the right choice for you.

Before using the standard deduction, check your eligibility. Some taxpayers do not qualify and must itemize; for example, married filing separately where one spouse itemizes.

The IRS provides assistance to determine your standard deduction. You can use the Interactive Tax Assistant at the IRS website to calculate how much you can deduct using the standard deduction.