A:

Individuals filing a tax return have the option of taking either a standard deduction or itemizing their deductions. Deductions reduce the amount of income that the federal government considers taxable. Taking the standard deduction is the easiest and most common method chosen by filers, but many taxpayers may wind up paying less tax if they itemize qualified expenses. While tax preparation companies often calculate both methods, people preparing their taxes on their own should still consider figuring out how much they will save under each method.

The standard deduction is the easiest deduction to claim, and can be claimed even if the taxpayer doesn’t have expenses that could otherwise be itemized. The amount of the standard deduction is based off the taxpayer’s filing status, age, and whether the filer is blind. It is a fixed amount that reduces the amount of income that is considered taxable, and the amount of the deduction can change from year to year because it takes into account inflation. Taxpayers filing as single are offered the lowest standard deduction, while those married filing jointly are given the highest deduction. Claiming the standard deduction requires the taxpayer to use Forms 1040, 1040A or 1040EZ. In some cases, such as a married couple filing separately with one taking itemized deductions, the standard deduction is not allowed.

Calculating itemized deductions is more complicated than taking the standard deduction, though all taxpayers should still figure out whether itemizing makes sense. Taxpayers use Schedule A to calculate which expenses qualify, with common examples including home mortgage interest, real estate taxes, personal property taxes, state and local taxes, medical and dental expenses, investment interest, job expenses, and charitable donations. Homeowners are often the most likely to benefit from itemizing, though a general rule of thumb is to look into itemized deductions if there were any expenses that were incurred over the course of the year that are a lot higher than normal. For example, if floods caused substantial losses, or if the taxpayer had a substantial bill related to a medical emergency.

RELATED FAQS
  1. How can I make sure I'm ready to file my taxes?

    Whether you file your return yourself, or have it done by a tax professional, you want to make sure you include all your ... Read Answer >>
Related Articles
  1. Taxes

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  2. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  3. Taxes

    7 Expenses You Won't Believe Are Deductible

    Many taxpayers would be surprised to discover some of the things that qualify as legitimate deductions.
  4. Taxes

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  5. Taxes

    How To Get The Most Money Back On Your Tax Return

    These tips will help you get a larger refund this year, while teaching you how to pay less taxes going forward.
  6. Taxes

    New Tax Rules Target The Top Tax Bracket

    The American Taxpayer Relief Act brings about new tax rules for the wealthy that people such as Warren Buffett have been calling for over the last few years.
  7. Taxes

    11 Tax Deductions You Can't Actually Write Off

    These are some of the most common tax write-offs that you can't really claim.
  8. Taxes

    Major Tax Credits Expiring In 2013

    Here are the major changes and tips that you need to know before filing your taxes for 2013.
  9. Taxes

    Don't Miss These Tax Deductions

    Knowing the tax deductions you're entitled to can make or break your bank account. Do you know about all these insurance-related deductions?
RELATED TERMS
  1. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  2. Standard Deduction

    A base amount of income that is not subject to tax and that can ...
  3. Charitable Contributions Deduction

    One of the itemized deductions available for taxpayers who donate ...
  4. Schedule L

    A form attached to Form 1040 that is used to calculate the standard ...
  5. Mortgage Interest Deduction

    A common itemized deduction that allows homeowners to deduct ...
  6. IRS Publication 535 - Business Expenses

    A document published by the Internal Revenue Service (IRS) that ...
Hot Definitions
  1. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  2. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  3. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  5. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
  6. Dark Pool

    A dark pool is a private financial forum or exchange for trading securities.
Trading Center