Standard Deduction Vs. Itemized Deduction

Standard Deduction Vs. Itemized Deduction
Doing your taxes can be a stressful task.

Standard Deductions

A standard deduction on an income tax return is based on your specific circumstances. It is determined by whether you are single, married, head of the household, married but filing separately, have dependents, or are a qualified widow or widower. The standard deduction assumes that an "average" number of deductions would apply to you and lumps them all into one sum.

Itemized Deductions

Itemized deductions on a tax return look into the actions that you've taken over the past year. Common deductions that are itemized on a tax return include medical costs, state or local income taxes, real estate taxes, donations to charities, mortgage interest payments and business expenses that weren't reimbursed. This total may or may not end up being more than a standard deduction.

Benefits

When deciding which type of deduction to take, you should choose the one that saves you the most money. The only reason to take the time to calculate itemized deductions is if it's clear that the sum will be larger than the standard deduction you would qualify for. Standard deductions are an easy way to avoid the hassle of going through your past year's expenses and determining which ones to itemize. Itemizing your deduction will take longer, but can be of great benefit to those who have made a lot of tax-deductible payments throughout the year. If you're unclear on which method to use, consult a tax professional.

Standard Limits

The Internal Revenue Service states that certain taxpayers may not be eligible to take a standard deduction. These taxpayers include "nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods." Standard deductions for 2012 are $5,950 for singles, $11,900 for married filing jointly, $8,700 for heads of household, $5,950 for married filing separately and $11,900 for qualifying widows and widowers.

Itemized Limits

Depending on your income, you may be limited on just how much you can itemize on your tax return. In addition, if you're married filing separately and want to file an itemized deduction, your spouse must do the same. Therefore a decision should be made that benefits both parties.