When it comes to preparing your taxes, your accountant or tax software is only as good as the information you provide. And when it comes to what kind of deduction you want to take to provide the most tax savings allowable, you will need to furnish the best information you can.
But First, What Is Itemizing Deductions?
Itemizing your deductions is done on Schedule A and is attached to the federal Form 1040.
Your itemized deductions are all of the expenses you incurred during the year that the IRS allows you to deduct from your gross income.
For people that had high amounts of allowable expenses, it can be more beneficial to do this. However, itemizing your expenses costs more, usually regardless of if you are during your taxes yourself through software or having a tax pro do them, and takes more time throughout the year for recordkeeping.
What About Taking the Standard Deduction?
Taking the standard deduction is as simple as subtracting an arbitrary number determined by Congress from your gross income. No recordkeeping and no squabbling with an accountant about what is an allowed expense.
However, the standard deduction is limited to an amount that is indexed for inflation. The standard deduction in 2017 for single filers is $6,350.
So When Is It Beneficial to Itemize Versus Taking the Standard Deduction?
It’s only beneficial to itemize your deductions if they exceed the amount of the standard deduction. If they don’t, you’re likely wasting your time.
Now, the standard deduction is going to be getting an overhaul next tax season, rising to $12,000 for single filers in the 2018 filing season, meaning your deductions would have to exceed $12,000 for an itemized list of deductions to be beneficial.
It’s likely this will significantly reduce the amount of people that itemize, especially considering roughly only 30% of filers itemize currently.
This page is not meant to constitute financial advice. For specific information concerning your financial situation, please contact your local financial advisor.