Knowing the difference between the standard deduction and itemized deductions might save you a lot of time and trouble, and some taxes to boot.
The IRS gives taxpayers a choice of using the standard deduction to calculate their taxable income. For taxpayers with large mortgages or charitable donations, its a no-brainer; they come out ahead by itemizing. For others, it boils down to a question of whether it's worth the trouble of sifting through all their records and receipts.
To put things in perspective, the standard deduction for 2015 will be $6,300 for single filers, $12,600 for those married filing jointly. If you or your spouse are over 65 or blind, the standard deduction is a little higher. So if your total mortgage interest, property taxes, and charitable donations are normally less than those figures, you will probably be better off with the standard deduction.
But that's not the end of it. If you have a large out-of-pocket medical bill in one year , it might tip the scale towards itemizing. Only qualified medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible, but the threshold is 7.5% of AGI through 2016 if you are 65 or older. After 2016, its 10% for everyone. If you think you will qualify for a medical expense deduction this year, consider adding other deductions such as extra charitable donations before December 31 to maximize your tax savings.
Take note that if someone else can claim you as a dependent, you cannot take the full standard deduction, so you might be better off itemizing. Another wrinkle: Itemized deductions are limited when income reaches $258,250 for single filers, $309,900 for married filing jointly.
Keeping track of potential itemized tax deductions may be unnecessary in your situation, but before you make that call speak with a tax professional.
Jeremiah K. Murphy, CPA is an accounting firm providing tax services, audits and business consulting.