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It's the first question to tackle at tax time—to itemize or not to itemize?
Here's The Rule
Itemize when the total of your itemized deductions is greater than your standard deduction. In other words, itemize only if you'll get a bigger refund as a result.
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How to Find Out if Itemizing Is Better
A deduction reduces your tax bill by lowering the amount of income you're taxed on. Nearly everyone who gets a paycheck is eligible for the standard deduction, but the amount of the deduction varies based on how you file. A married couple filing a joint return, for example, will receive a standard deduction of $11,900 this year. Single filers will receive $5,950.
Your other option is to itemize, which means you have to add up your individual deductions, such as:
- Medical and dental expenses
- Taxes (state and local income taxes, property taxes and state sales tax)
- Interest expenses, such as home mortgages
- Charitable contributions
- Casualty and theft losses
If your expenses in these categories add up to more than your standard deduction, then you should itemize.
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Here's An Example
Mortgage interest is 100% deductible. Let's say your year-end statement from your mortgage company says you've paid $12,250 in mortgage interest this year. You've already beaten the standard deduction for a couple filing jointly. Any other deductions are icing on the cake. In this case, you should definitely itemize your tax return.
On the other hand, if you've added up your expenses and you're short of the standard deduction, take the standard deduction. If you go that route, you can still deduct things like moving expenses, or you can take advantage of tax credits for childcare. A tax services Endorsed Local Provider (ELP) can show you all of the deductions you qualify for, help you crunch the numbers, and answer any questions you have.
Find a local, hardworking tax professional who can help you keep more of your hard-earned money.