Standard Deductions vs Itemized Deductions

There are two ways to make tax deductions, namely, through standard deductions and through itemized deductions. The standard deductions and the itemized deductions are governed by different rules, so it is important to be familiar with the rules governing each method of making deductions. To get a clear picture of how each of these methods works, let us discuss their coverage as well as their advantages and disadvantages.

Eligibility

All taxpayers are eligible to itemize deductions when computing their taxes. This means that even if you are a nonresident alien who has taxable income in the United States, you can itemize your predetermined deductions when you file your tax returns. On the contrary, not all taxpayers can make use of the standard deductions. In fact, only US citizens and resident aliens may use the standard deductions scheme when filing tax returns, so if you are a nonresident alien earning taxable income on American soil, you cannot make use of standard deductions when computing your tax dues.

Forms Used

Standard deductions and itemized deductions are entered under different IRS forms. For standard deductions, you need to use IRS form 1040EZ, and if you opt for itemized deductions, you will need to use Form 1040 and Schedule A.

Filing Procedure

Itemized deductions involve more paperwork than do standard deductions. Note that when you itemize your deductions, you need to list all the allowable deductions on your tax returns. To do this, you need to complete IRS form 1040 and the attached schedule A. If you are filing a business return, to avoid problems in the future, you should make sure that all the expenses you declared under schedule A are business related. If you are filing personal returns, your allowable deductible expenses may include medical expenses such as a doctor’s fee, healthcare coverage, costs of medicines and medical equipment and the like.

All the expenses that you listed under schedule A must be supported with proper documents, such as contracts and receipts. Failure to attach the necessary documents to your itemized expenses may cause the IRS to deny your claims. If, however, you decide to use standard deductions, you should use IRS form 1040EZ. Unlike for itemized deductions, which need supporting documents, you do not need to attach any receipts or documents proving that the expenses you claim are related to your business.

Standard Deduction Rates and Special Criteria

The standard deduction rates are reevaluated every year based on the inflation rate. This means that the rates may vary from year to year, so it is very important to check the current rate before you make any deductions on your tax returns. Also, different rates may apply depending on your filing status, so if you happen to fall within certain special criteria as prescribed by the IRS, you may enjoy higher deduction rates. Taxpayers who are over 65 years old and those who are disabled but earning income fall under the special criteria for deductions under the IRS rules.

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