Determining whether to itemize or take a standard deduction when filing taxes can be challenging at times.
Determining whether to itemize or take a standard deduction when filing taxes can be challenging at times. (Photo : by Kelly Sikkema / Unsplash)
Tax experts advise against itemizing unless your total itemized deductions exceed the existing standard deduction, which is $13,850 for single filers and $27,700 for married couples.
Comparing Itemizing with Standard Deduction
Generally speaking, the standard deduction is the best option for most taxpayers. Kathy Pickering, H&R Block's chief tax officer, explains that taxpayers typically benefit from taking the standard deduction if their total itemized deductions are lower than the standard deduction for their filing status. However, if their itemized deductions exceed the standard deduction, they must itemize. Pickering notes that there are exceptions and often overlooked deductions that taxpayers should consider when itemizing.
Amounts paid for qualified real estate and personal property taxes, mortgage interest, disaster losses, contributions to charitable organizations, and a part of medical and dental costs are just a few examples of the expenses that can be written off.
The largest three potential deductions for most people are mortgage interest, charitable contributions in cash or property (a separate form needs to be completed for any amount over $500, and an appraisal is required for any amount over $5,000), and eligible state and local taxes (also known as SALT), which is currently capped at $10,000 for most people. These are stated by Tom O'Saben, director of tax content and government relations at the National Association of Tax Professionals.
Deductions for Independent Contractors or Company Owners
Keith Hall, CEO of the National Association for the Self-Employed and a certified public accountant, highlights that small business owners typically deduct business expenses directly from their bank accounts. While capturing these expenses is straightforward, Hall notes that there are some commonly overlooked deductions that entrepreneurs should be aware of.
Small company usage of cars is one thing. Store a log in your vehicle. Note down the miles you travel to see clients, visit the post office, or shop for supplies. They total up. For 2023, the deduction is available at 65.5 cents per mile.
It's also simple to overlook the deduction for home offices. You can deduct $5 per square foot if you have a dedicated home office for your business.
Contributions to retirement funds may also be deducted, according to Hall. These donations now prevent tax expenditures. Many small company owners have a streamlined employee pension fund.
Pickering notes that two categories of deductions need to be considered: above-the-line and below-the-line.
According to Pickering, "Deductions above the line can be taken in addition to the standard deduction and can be taken without having to itemize your deductions." Only when the person itemizes their deductions may they claim below-the-line deductions.
A typical above-the-line deduction is the interest paid on student loans. Even if itemized deductions are not taken, this can still be claimed using the standard deduction.
According to O'Saben, K-12 teachers can deduct $300 per tax filer ($600 if a married pair consists of both instructors) for non-reimbursed classroom expenditures such as protective masks and cleaning wipes. Additionally, he advises military personnel who travel to remember to remove non-reimbursed costs.
However, the ability to deduct eligible interest paid by a homeowner on their mortgage is limited to individuals who want to take itemized deductions in addition to the standard deduction amount.
Medical expenditures are another below-the-line deduction to take into account, but according to O'Saben, they must surpass 7.5 percent of gross income in order to qualify.
