Easy Tax Decisions Made Simpler
Deciding between a standard deduction or itemizing when filing taxes can be puzzling. Experts have laid down clear guidance to simplify this crucial choice for taxpayers. Opting for the standard deduction is often more beneficial unless your itemized deductions surpass $13,850 for singles or $27,700 for married couples filing jointly.
Standard Deduction: The Go-To for Most
Kathy Pickering from H&R Block highlights that the majority of filers benefit from the standard deduction unless their itemized deductions exceed these thresholds. However, special circumstances, like being a dependent with a limited standard deduction, could tilt the scales towards itemizing.
Key deductions to consider include state and local taxes, mortgage interest, charitable gifts, and certain medical expenses. Tom O’Saben of the National Association of Tax Professionals emphasizes the top three deductions: mortgage interest, charitable donations, and state and local taxes—capped at $10,000 for most.
Self-Employed? Don’t Miss Out
Keith Hall of the National Association for the Self-Employed points out often-overlooked deductions for entrepreneurs, such as car usage for business, the home office deduction at $5 per square foot, and contributions to retirement funds like a SEP, which offers significant tax savings.
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Above-the-Line vs. Below-the-Line Deductions
Understanding the difference between above-the-line and below-the-line deductions is crucial. Above-the-line deductions, such as for student loan interest or teacher expenses, are available regardless of whether you itemize. Below-the-line deductions, like mortgage interest and medical expenses, require itemizing and are subject to specific thresholds.
Tailoring to Your Situation
While navigating these options, don’t overlook state-specific or industry-specific deductions and credits, which can further reduce your tax liability, advises O’Saben. Credits, unlike deductions, directly reduce the amount of tax you owe, offering potentially greater savings.
For the vast majority, the standard deduction simplifies tax filing and maximizes refunds. However, personal circumstances, such as business expenses or charitable donations, could make itemizing the smarter choice. When in doubt, consulting with a tax professional can ensure you make the most informed decision for your situation.
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