Itemization vs. Standard Deduction

Every year, American taxpayers are faced with the question of whether it is worth their time to keep careful records of all of their individual tax-deductible expenditures.  With the availability of the standard deduction, to many it may seem like an unnecessary exercise and headache, but maintaining these records can be a benefit if you spent a lot on these expenses.

When making the determination, there are several things that you need to keep in mind. The first thing is to understand exactly what your standard deduction amount is. This is determined by what your filing status is, as well as other considerations such as whether either you or your spouse is blind, and your age. The standard deductions for 2015 are as follows:

  •             Single                                      $  6,300
  •             Married filing jointly (*)           $ 12,600
  •             Married filing separately         $  6,300
  •             Head of household                  $  9,250

These are additional deductions that come into play for those who are 65 or older, as well as if either your or your spouse is blind (**):

  •             Married filing jointly               $ 1,250
  •             Others                                     $ 1,550

  *Qualifying widows and widowers who have a dependent child and whose spouse died in 2013 or 2014 also get this deduction.

**Taxpayers or their spouses where both are over the age of 65 and blind get two additional amounts. This does not apply to dependents.

Knowing your standard deduction helps to determine whether it is worthwhile to itemize or not. The individual expenses that can be itemized include monies paid for mortgage interest, taxes, charitable contributions, casualty losses and medical expenses. There are also miscellaneous deductions which are usually related to either employment or investments that can be itemized. If all of these expenses combined add up to more than your standard deduction, then it may be worthwhile to dig up all of those records.

That being said, there are certain factors that can make the whole point moot. Some taxpayers are not able to take the standard deduction as a result of their particular circumstances. These situations may include being subject to the Alternative Minimum Tax, being married and filing separately rather than jointly, or being ineligible for the standard deduction as a result of being a nonresident alien, dual-status alien, or filing a return for a period of less than a year.

In addition to needing to these disqualifiers, there are also certain limitations on how much you can count towards certain itemized deductions. For example, in order to itemize medical deductions they must add up to more than ten percent of your adjusted gross income (AGI), or 7.5% for those who are 65 or older. Itemizing taxes on state income, sales taxes and real property tax aren’t affected by income, but for AMT purposes they are not deductible at all. This means that if you deduct large amounts for taxes paid, it may make you subject to the alternative minimum tax, effectively eliminating the benefit of having taken them as an itemized deduction in the first place.

If you need help understanding how itemizing may help you, or determining what the total amount of your itemized deductions would be, we are happy to help. Call our office today for professional assistance in making this and other important tax decisions.

Have a question about your individual taxes? Call us at (831) 288-3784 and let's discuss your financial future.