It’s tax time again! It’s hard to keep up with the changes and know what your best strategy is. At JStevens Accounting, one of the things we help people with is deciding whether to use the standard deduction when calculating their taxes, or itemizing deductions to lower taxable income. You can use one or the other, but not both. So, you need to know which method will save you the most money. First, let’s take a look at what these terms mean.
The Standard Deduction on Your Taxes
The standard deduction is a figure that stays the same for everyone and allows you to claim a certain amount of money against your total income. It requires little calculation, since it’s a flat fee, and it’s a set amount, no questions asked, that anyone can claim on their taxes. It takes less time to do your taxes when you use the standard deduction method… there’s less to figure out.
When you file your return using itemized deductions, you are choosing from a list of allowed deductions and selecting those that apply to you. There are many to consider, and knowing the rules for each one is essential. When you itemize deductions, you want to use tax software, or even better, a professional accountant or tax preparer that knows the ins and outs of itemized deductions.
Pros and Cons of Using the Standard Deduction
- There are several things to keep in mind when you are considering using the Standard Deduction on your tax return.
- It’s usually faster, as you can avoid having to do all the computations involved in itemizing deductions
- The standard deduction tends to get bigger every year… much like a cost of living raise
- For some people, the standard deduction is higher than itemized deductions would be, and conversely, for others, they may have to pay more tax if they do not itemize
Pros and Cons of Using Itemized Deductions
- Itemized deductions can add up to much more than the standard deduction
- You have a lot of deductions to choose from… including medical expenses and charitable contributions
- You must understand the rules for each itemized deduction you wish to claim on your return
- It will take more time to prepare your return, which may mean more money for your preparer
- You’ll need to have receipts for itemized deductions you decide to take on your return
Let’s talk more about deductions when you make your appointment. If you’re unsure of your best strategy this year at tax time, contact us at JStevens Accounting, and let us help you prepare your return.