When processing your taxes, it can sometimes be difficult to know whether to itemize or choose the standard deduction.
According to tax professionals, itemizing generally only makes sense if your itemized deductions add up to more than the current standard deduction of $13,850 for a single filer and $27,700 for a married couple.
Here's what you should know:
Standard deduction versus itemization
For the vast majority of tax filers, the standard deduction is the way to go. “In general, taxpayers whose total itemized deductions are less than the standard deduction (based on their filing status) will benefit from taking the standard deduction. However, if a taxpayer's total itemized deductions are greater than their standard deduction, they should itemize,” Kathy says. Pickering, chief tax officer at H&R Block.
However, there are a few exceptions, and some things to keep in mind that people sometimes forget.
“One situation where it may be helpful to detail is when a taxpayer is alleged to be dependent on another taxpayer's revenue, and their standard deduction is limited,” Pickering said.
Deductions can include amounts paid for qualified state and local income taxes, real property taxes, personal property taxes, mortgage interest, disaster losses, gifts to charity, and a portion of medical and dental expenses, among others.
According to Tom Osapin, director of tax content and government relations at the National Assn. According to tax professionals, the three largest potential deductions for most people are mortgage interest, charitable contributions, and qualified state and local taxes (known as SALT), which for most people are now capped at $10,000.
Discounts for self-employed people or business owners
“For small business owners, almost all tax-deductible business expenses come out of their checkbook. Catching those is the easy part. But there are some things that are easy to miss,” says Keith Hall, CEO of the National Assn. Special (and the Comprehensive Peace Agreement itself).
Using a car for small businesses is one thing. Keep a log in your car. When you go to see a client or go to the post office or supply store, write down those miles. They add; A deduction of 65.5 cents per mile is allowed for 2023.
The home office deduction is also easy to miss. If you have a dedicated home office for your business, $5 per square foot can be deducted.
Retirement fund contributions can also be deducted, Hall says. These contributions save tax dollars today. A simplified employee pension fund is something many small business owners have.
“Opening a SEP is as easy as opening a bank account, and they can contribute up to 20% of their earnings to that account, which is tax-deductible,” says Hall.
Above the line and below the line discounts
Pickering points out that there are two types of deductions to consider: above the line and below the line.
“Excess deductions can be claimed without having to itemize your deductions, and can still be claimed when claiming the standard deduction as well. Below-the-line deductions can only be claimed if taxpayers itemize their deductions,” Pickering explains.
A common above-the-line deduction is the student loan interest paid. This can be taken even if the standard deduction is taken instead of itemized deductions.
Other deductions to consider are the $300 per tax filer ($600 for a married couple who are teachers) for K-12 teachers on non-reimbursable expenses used in the classroom like disinfectant wipes and face masks, O'Saben says. He says military members who travel should also remember to include deductions for unreimbursed expenses.
On the other hand, the qualified interest a homeowner pays on his or her mortgage is a below-the-line deduction, which is only available to those who choose itemized deductions rather than taking the standard deduction.
Other deductions to consider are medical expenses, although they must exceed 7.5% of gross income to be eligible, Osabin says.
“In most cases, the list of deductions cannot include health insurance premiums, because they are usually deducted from their paychecks before taxes. It also cannot include over-the-counter nutritional supplements or elective things like plastic surgery. These must also be paid Expenses in full.
“I've been collecting taxes for over 33 years, and I always tell my clients that it's the truth of what you spent your money on that will do it.”
Check your country and industry-specific discounts
Sometimes it makes sense to check with your state for state-specific deductions, Osapin says.
“I'm in Illinois, where they allow educational materials for K-12 teachers to be credited for up to $500. That means a $500 cut on your taxes,” he says.
Unlike deductions, which reduce your taxable income, credits reduce your final tax bill.
Roth writes for the Associated Press.
