Should I Itemize Deductions On My Income Taxes This Year?

federal state tax deductions

Don’t let tax deductions be too difficult to understand

There are two basic ways to approach the question “should I itemize deductions”  when you are ready to complete your federal and state income tax returns this year.  You can either itemize your deductions, or you can use what is called the standard deduction allowed by the IRS.  Obviously, you will want to choose the option that either gives you the largest tax return or costs you the least in taxes owed.

The Internal Revenue Service calculates standard deduction amounts that you can take from your gross income for each filing category, whether it be single, married filing jointly, married filing separately, head of household, etc.

They call this amount the standard deduction amount.

Basically, you would take your gross income minus these standard deduction amounts and pay taxes on the rest. For 2014, the standard deduction amount is $6,200 for people filing as single or married couples filing separately. People filing as head of household may deduct $9,100 as a standard deduction. Married couples filing jointly may use a standard deduction of $12,400. These amounts would apply to income earned in 2014.  As a simple example, if you made $100,000 in gross income in 2014 and filed as a single taxpayer, you would pay taxes on $100,000 – $6,200 or $93,800.

Why Should I Itemize Deductions?

Common reasons people itemize their deductions is because they either have a home mortgage and/or their charitable donations exceed the standard amounts above. Home mortgage interest and documented qualified charitable donations can be itemized and deducted from the gross income that you use to calculate your tax burden. For example, if you have $7,000 in home mortgage interest that you paid and $3,000 in charitable donations that you made in a given year, if you filed as a single taxpayer you can take advantage of deducting $10,000 from your gross income rather than only the $6,200 standard amount.

Some free online tax preparation software choices allow you to test both options. Turbotax for example automatically determines whether you will take the standard deduction or not based on interview answers that you provide within the software when filling out your forms. In any case, if you itemize your deductions and those deductions don’t exceed the standard amount allowed by the IRS, then it makes more sense to take the standard deduction amount rather than to itemize.

For more tips on taxes, insurance, homes, and investing check out a free sample of What I Should Have Learned About Money Before Age 25.

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