Know Whether to Take the Standard Deduction or Itemize Before You File

If know whether take standard is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.

Key Takeaways

• Just the Tip: Every taxpayer chooses each year between the standard deduction, a fixed IRS amount, and itemizing actual expenses like mortga...
• Itemize only if your deductible expenses exceed the standard deduction.
• Most people take the standard amount, but homeowners with big mortgage interest often come out ahead itemizing, so run both calculations.

Just the Tip:

Every taxpayer chooses each year between the standard deduction, a fixed IRS amount, and itemizing actual expenses like mortgage interest, state taxes, and charitable contributions. Itemize only if your deductible expenses exceed the standard deduction. Most people take the standard amount, but homeowners with big mortgage interest frequently come out ahead itemizing, so run both calculations.

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Most filers never do. Tax software defaults to the standard deduction, and unless you enter your deductible expenses, it has nothing to compare. People who would come out ahead itemizing take the smaller number without ever knowing it.

The comparison takes less effort than it sounds. Itemized deductions come down to four main buckets: mortgage interest, state and local taxes up to a federal cap, charitable donations, and medical bills above a set share of your income. Add them up. If the total beats the standard deduction for your filing status, itemizing wins.

Since the standard deduction nearly doubled in 2018, about 9 in 10 filers take it, per IRS data. That still leaves millions who save by itemizing, and they cluster in predictable groups: homeowners in the early years of a mortgage, when payments are mostly interest, and filers in high-tax states whose property and income taxes stack up fast.

Before you file, gather three records: your Form 1098 showing mortgage interest paid, your property tax bill, and receipts for every donation. Enter all of it into your tax software even if you expect to take the standard amount. The software compares both totals and applies the larger one automatically, but it can only compare numbers you give it. If you use a preparer, hand over the same documents and ask to see both calculations.

If your itemized total lands just short, look at bunching. Concentrating two years of charitable donations into one can push that year over the line.

The math takes ten minutes once your documents are in hand. Make it the first step of your filing routine, not an afterthought.

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Categories: Save Money, Taxes

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Final Thoughts

Before you check out, double-check know whether take standard against current offers and any coupons you can stack. Small habits like this add up to real savings over a year.

Originally published at moneycrashers.com.