Standard vs. Itemized Deductions

How carefully and thoroughly do you consider your options when it comes to deductions for your yearly tax return? If you really don't give it much thought, don't feel too badly; you're by no means alone. Many taxpayers simply use the 1040A or -EZ Forms, fill them out as quickly as they can, and let it go at that. But, it's quite possible that most of these people are doing themselves (and their bank accounts) a disservice. Here are some facts about standard and itemized deductions that you should definitely know.

The standard deduction is a fixed amount that's automatically deductible from your adjusted gross income (or, AGI). The size of the deduction depends upon your tax filing status. The largest deductions are given to individuals that file with a status of 'Married Filing Jointly.' 'Qualified Widow(er)' and 'Head of Household' filing statuses receive a lesser amount, and those whose status is 'Single' or 'Married Filing Separately' get the smallest standard deduction. The amounts are subject to change due to cost-of-living fluctuations and have typically been raised yearly by the IRS.

But, that's not the end of the story. You also have another option when it comes to deductions. It's called itemized deductions, or simply itemizing. Many people are under the mistaken impression that you have to be rich in order to itemize. Others don't understand it, giving up on the process as being just too complicated. However, itemization is actually not very difficult and can be done by almost anyone who files taxes. It simply involves adding up all of your expenses that are considered deductible according to IRS rules. If the total of these 'itemized' deductibles exceeds the amount that you qualify for under the standard deduction, then you should use Form 1040 along with Schedule A to take the larger deduction. Increasing deductions works in your favor to lower your taxable income. Any amount that can legally be shaved off of your income reduces the amount that's left to be taxed by the government.

For example, let's say that you run a business out of your home. You work in a room that's set up as an office. The equipment in this room is used solely for business purposes, and you also take conference calls and meet with clients in there. According to the IRS, the costs associated with or generated by this room are tax-deductible as home office expenses. Not only can you deduct the room's equipment, supplies and furniture, you can also take off a commensurate portion of your mortgage or rent, electric and utility bills, and telephone expenses.

Of course, there are many more deductions that are available with a home office, but you certainly don't have to run a business out of your house to take advantage itemizing. Medical expenses, charitable contributions and property taxes are just a few of the expenses that you might be able to deduct from your income. There's literally a wealth of deductions that you could possibly qualify for. It's worth a bit of extra time (and, perhaps, a lot of money) to check them out.