Laws change almost every year regarding standard deduction vs itemized deduction. The correct choice depends on your client’s individual financial situation as well as their goals for the future. Depending on the circumstances, making the right decision can lead to immense tax savings. There are a few big issues that will affect this choice in 2017.
Pros and Cons of Standard Deductions
The main benefit to choosing a standard deduction is that it is is simpler. No receipts are required. The amount allowed under this deduction varies according to filing status and a few other considerations, such as whether the filer is disabled, blind, or over the age of 65. It is adjusted every year for inflation.
The main drawback of a standard deduction is that it may be lower than the amount of deductions some people can get if they itemize them. If this is the case, it is often worth it to save receipts and itemize.
When It’s Time to Itemize
There are a wide range of expenses that qualify for itemized deductions. Expenses such as donations to charities, home mortgage interest, state and local taxes, and taxes on real estate can be deducted in full. Other expenses can be deducted up to a certain percentage of the filer’s adjusted gross income (AGI). Medical expenses can be deducted when they exceed 10% of AGI, while theft and casualty losses can be deducted for the portion that exceeds $100 plus 10% of AGI. Miscellaneous expenses have their own rules for partial deduction. Generally, these will only add up to more than the standard deduction for a small portion of the population.
Standard Deduction vs Itemized Deduction
The standard deduction is an easy choice that will be roughly equal or even greater to deductions for the average individual. However, people with high earnings or high expenses generally benefit from itemizing. Itemized deductions require more accounting work as well as savings receipts and other financial tasks. It often requires complex math and accounting knowledge to determine whether standard deduction vs itemized deduction is right for a unique individual’s situation.
