Need tax help and understanding the difference between tax deductions and tax itemizing?
What is the difference between tax deductions and tax itemizing?
A lot of people have this same question. On your income tax return there is a choice between either taking a standard deduction or taking itemized deductions. Either one will reduce your income taxes by reducing the amount of your taxable income. Your tax preparer will chose the one that benefits you the most.
The amount of your standard deduction primarily depends on your filing status (single; married filing jointly; married filing separately; head of household; or qualifying widow(er) with dependent child).
The standard deduction goes up for taxpayers that are age 65 or older and for those that are legally blind. For example, in tax year 2013, a single taxpayer at age 65 would have a $7,600 standard deduction, which is an increase of $1,500 as compared to a younger single person.
If a dependent files his/her own return, the standard deduction may be limited (reduced) on the dependent’s tax return.
The IRS adjusts the amounts of the standard deduction each year for inflation. For example, in tax year 2013, the standard deduction was $6,100 for a single person – in 2014 it will be $6,200. For 2013 it was $12,200 for a married couple filing jointly – it will be $12,400 in 2014.
Most taxpayers can take a standard deduction, although there are a few that cannot. A situation that would prevent taking a standard deduction is when your filing status is married filing separately, and your spouse itemizes deductions on his or her return.
An advantage to taking a standard deduction is that it is audit proof. Unlike itemized deductions, the taxpayer does not have to keep records regarding a standard deduction.
You typically would itemize only when the total itemized deductions are greater than the standard deduction. It takes work and effort from both the taxpayer and the preparer to claim itemized deductions, but the time spent may be well worth it. You have to keep records to claim itemized deductions. In an audit, no supporting documents will mean that the IRS can disallow the deduction. The exact totals for each qualified deduction must be added up from your records and reported on a Schedule A. The table below lists itemized deductions and corresponding supporting documents.
|ITEMIZED DEDUCTION||EXAMPLES OF SUPPORTING DOCUMENTS|
|Medical & dental expensesin excess of 10% adjusted gross income (7.5% if 65 or older)||
|Taxes you paid(state & local)||
|Interest you paid(Home mortgage or investment interest)||1098 mortgage|
|Gifts to Charity||Best is a statement/letter from the charity with other proof of payment. There is a common misconception that there is some amount below which you don’t need documentation. Not true. Regardless of the amount some type of record is required.|
|Casualty and Theft Losses||Insurance claim loss appraisal & explanation of benefit,police report, proof of payments|
|Job Expenses andMiscellaneous Deductionstotal in excess of 2% adjusted gross income||Business mileage log, proof of payments, records of reimbursements from employer|
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