All citizens are expected and are encouraged to arrange their financial affairs to reduce the amount they owe the government in taxes. This is called tax avoidance and it is different from tax evasion because you do not go to jail for performing it. It is not illegal because you are still paying everything you owe; it is good because you are not paying anything more than that. One of the simplest tools that the IRS gives us is the choice between an itemized and a standard deduction.
Itemized deductions are items within your financial affairs that are specifically allowed and regulated as deductions in the Internal Revenue Code. Items include medical expenses, state and local income taxes, property taxes, charitable contributions, losses from theft and damage to property, and a wealth of other employee expenses. Itemized deductions mainly benefit higher-level income taxpayers and stand a good chance of giving you a greater deduction than that of the standard deduction alone. The drawback is that the calculation of itemized deductions can become so complicated as to take days on end, so it is best left to a professional, or to a tax program that guarantees an accurate calculation. This ensures that if your return is audited, you will not be left alone with the IRS agents to be interrogated for the computer’s mistake.
The calculation of itemized deductions is enough to boggle the mind of all but the most patient and detail-oriented professionals among us. It is for this reason that we receive the benefit of a standard deduction, a set minimum deduction given to every taxpayer as an alternative to itemization. This standard deduction is based upon your filing status and adjusts for inflation every year. The following filing statuses are used for determining standard deductions.
Married Filing Jointly $10,700
Married Filing Separately $5,350
Head of Household $7,850
Surviving Spouse (widows/widowers) $10,700
The standard deduction usually benefits moderate and low-income level taxpayers, as the amount is usually more than your itemized deductions. The benefit of using the standard deduction is that it drastically decreases the risk of being audited by the IRS. The drawback of the standard deduction is its allure that draws many to ignore calculating their itemized deduction when it could in fact result in saving them money.
Standard deductions are an easy and simple way for a low or moderate-income taxpayer to calculate their deduction that can help decrease your risk of being audited. Itemized deductions can be complicated and are best left to the professionals or programs with an audit guarantee, but can ultimately save you money. This tax season, don’t settle for the ease and allure of a standard deduction, but if you think it may save you money, go the distance and calculate your itemized deduction. You never know, you may save more than you think.