Going with the standard deduction is fast, but it might not necessary give you the most tax savings. And this year, with so many different tax policies shifting, it might be time to start looking at whether or not you could be leaving money on the table. Itemizing deductions means getting a lot more detailed than taking the standard deduction. The standard deduction is a flat amount that you deduct from your taxable income. This is based on your filing status, how many dependents you have, and what year you are filing the taxes for. Technically, the standard deduction is supposed to go up based on inflation.
Itemizing gives you the power to deduct real dollar amounts, like mortgage interest, property taxes, medical expenses and a lot more. However, you need to still make sure that it’s worthwhile to you.
The expense list that you can itemize is pretty large. Mortgage interest, charitable contributions, property taxes, state and local income taxes, along with medical expenses that exceed 7.5% of your ADJUSTED gross income (AGI). This is different from your complete gross income, so make sure that you’re using the right number.
You can also deduct expense that exceed 2% of your income like union dues, tools and supplies you must have for your primary professional, tax preparation fees, certain legal fees, and quite a few other things. If you really want to dig into the nuts and bolts of it, you will need to make sure that you check into Publication 501.
Itemizing is really only important if you own a home. We just don’t think that the majority of taxpayers are really going to be saving themselves any taxes by itemizing. If you have your taxes prepared by someone else, then what you really do is just incur additional fees. Who wants to deal with extra fees because you need the preparer to conduct additional research? They’re not going to do extra for you for free just because you want to save money. So keep that in mind too if you’re not doing your own taxes.
The IRS does provide a sheet that allows you to tally up your deductions. It’s going to be Schedule A of Form 1040 (the very long one!) and it’ll immediately give you the answer to whether or not you should go with the standard deduction.
There is a myth going around that if you itemize your deductions, the IRS looks at your return a little closer. The truth that the IRS looks at all returns at random to make sure that certain numbers line up. Is there a chance that you might receive some sort of secondary review? Yes, but not every “audit” is as scary as you might imagine — especially if you are keeping great records.
Now is the time to spend a little more time with your taxes. Even though tax season isn’t over, it’s never a bad idea to make sure that you have control over your tax situation. Remember, if you don’t take your taxes seriously, the IRS will take steps to make sure that you take them seriously!