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Maximizing Your Tax Deductions: Standard vs. Itemized
When it comes to reducing your tax bill, the IRS offers two main options: the standard deduction and itemized deductions. Understanding which option is best for you can help you save the most money. At O1ne Mortgage, we are here to assist you with all your mortgage needs. Call us at 213-732-3074 for expert advice.
What Is the Standard Deduction?
The standard deduction is a fixed amount that you can subtract from your taxable income, simplifying your tax preparation. You don’t need to track individual expenses or keep extensive records. The amount you can claim depends on your filing status:
- Single or married filing separately: $14,600
- Head of household: $21,900
- Married filing jointly: $29,200
If you or your spouse are 65 or older or blind, you may qualify for an additional deduction. Refer to IRS Publication 501 for more details.
Pros and Cons of Using the Standard Deduction
Pros
- Simplifies tax preparation with a flat amount
- No need to keep records or receipts
- Automatic qualification
Cons
- May be less than your total itemized deductions
- Not available if your spouse itemizes or if you’re a dependent
What Are Itemized Deductions?
Itemized deductions are specific expenses you can deduct from your adjusted gross income. Common examples include mortgage interest, charitable donations, and medical expenses. To claim these, you may need to provide documentation or keep records in case of an audit.
Common Itemized Deductions
- Mortgage interest: Up to $750,000 ($1 million if before December 16, 2017)
- State and local taxes: Up to $10,000 ($5,000 if married filing separately)
- Student loan interest: Up to $2,500
- Medical and dental expenses: Exceeding 7.5% of your adjusted gross income
- Charitable contributions: If the charity is IRS-qualified
- Casualty and theft losses: From federally declared disasters
Pros and Cons of Itemized Deductions
Pros
- Potentially higher deductions than the standard deduction
- More savings if you’re in a higher tax bracket
Cons
- More complicated tax preparation
- Requires good recordkeeping
Should You Itemize or Take the Standard Deduction?
Choosing between standard and itemized deductions depends on which option offers the best tax savings. Here are three ways to decide:
1. Do a Gut Check
If you don’t have significant deductible expenses like a mortgage or large medical bills, the standard deduction is likely your best bet.
2. Do a Quick Estimate
Estimate your potential itemized deductions. If they exceed the standard deduction, consider itemizing.
3. Do the Full Calculation
Gather all necessary documents and calculate your total itemized deductions. Compare this to the standard deduction and choose the higher amount.
Where to Find Help
If you’re still unsure, tax preparation software or a tax professional can help you determine the best option. For any mortgage-related questions, don’t hesitate to contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey.
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