Should I Take The Standard Deduction or Itemize? How Much Could You Save On Your Tax Returns?
Almost 70% of the American population chooses the standard tax return, an obvious choice considering no extra paperwork is required. However, it is possible you might save on your tax return by itemizing your taxes instead, so let us take a closer look at the benefits of itemizing, and if you should be doing it.
Who Could Benefit from Itemizing Taxes?
Not everyone can benefit from itemizing their taxes, but there are some Americans who can; this includes people needing to pay a high local tax rate, homeowners, contributors to charities and tax payers with high medical bills. If you fall under any of these categories, you could benefit from itemizing.
Why Should I Itemize When I Pay a High Local Tax Rate?
Lisa Greene-Lewis, a CPA and tax expert for TurboTax stated that tax payers can deduct their state and local taxes on their federal return. So, if you live in a state such as California, Oregon or Minnesota, where state income tax rate is above 9%, it could certainly be a good idea to itemize your local taxes.
Why Should Homeowners Itemize?
Owning a home gives you immediate access to a whole lot of deductions; this includes considerable deductions such as mortgage interest reductions, where the homeowner can lower taxable income with the loan interest they pay. In conclusion, a mortgage of $300,000 with $12,000 interest could save you quite a bit of dollars on your tax bill.
How Could Charity Contributors Benefit from Itemizing?
Everyone knows that charitable donations could lead to some good tax deductions. However, experts say that itemizing your charitable donations are only worth the extra paperwork if you gifted a charitable donation appraised at $5,000. So, if you hit this mark, itemizing your tax returns could be quite advantageous to you.
How Can High Medical Bills Save Me on My Tax Returns?
Under the age of 65, Americans can deduce their out-of-pocket medical expenses, but only if their out-of-pocket medical expenses exceed 10% of their adjusted gross income. Americans under the age of 65 can also deduct medical expenses, but only if their expenses exceed 7.5% of their adjusted gross income. However, since many procedures and medications can be quite costly, most people meet the required threshold for their tax returns.
Are There More Tax Deductions I Should Be Aware Of?
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Aside from the deductibles we mentioned above, Americans should consider the so-called “above the line” deductions as well. These types of deductions are found on form 1040, more specifically in the Adjusted Gross Income part section of the form.
There are numerous “above the line” deductions you may qualify for. Even though we can’t mention them all in detail here, a good example of an above the line deduction are moving expenses. If you moved more than 50 miles away for a job, and your employer did not cover your moving expenses, you could deduct those expenses on your tax returns. Since there are many other deductions you may qualify for, be sure to check the Adjusted Gross Income section of form 1040 before you decide to do a standard tax return, because this could help you determine if itemizing could be worthwhile for you or not.
Itemizing your tax returns could save you money, so doing some research into your deductibles before you decide on itemizing or not could make the difference. Of course, you do not need to hire an expensive accountant to do your tax returns for you, because you might as well take advantage of the many tax return software programs available today!
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