Two-third of taxpayers take the standard deduction instead of itemizing, but if you are contemplating whether to itemize or take the standard deduction, you should evaluate which method will save the most taxes. PNJ tells you in which situations it will be a good idea to itemize your deductions.
“For tax year 2013, the standard deduction is $6,100 if you’re single or filing separately from your spouse. The standard deduction for those married and filing jointly is $12,200.
“If you have deductions (supported with proper documentation, of course) that top these amounts, then it makes sense to itemize your return.
“But if not, you’re simply wasting your time crunching numbers that won’t get you a bigger refund.”
Though it is cumbersome to itemize, in some cases, it pays to itemize your deductions even if it complicates your taxes. Chris Woehrle, assistant professor of taxation at The American College of Financial Services, at PNJ talks about these cases:
“Charitable giving. Making big donations each year can mean big tax write-offs if you itemize and have proper documents.
“Local taxes. Taxpayers who have high burdens with their state or local taxes, notably in places like New York or California, which have high rates, should consider itemizing. These taxes are deductible from your federal returns.
“Property loss. Anyone who has suffered a significant “casualty loss” – that is theft or property damage not covered by insurance – might want to itemize. The IRS gives you a tax break for these kinds of hardships.
“Homeowners. Those with mortgages, particularly loans taken out recently, should probably itemize. If you have a home loan, typically the first few years are almost all interest payments. That means you can unlock a big deduction.
“Health issues. While it’s sometimes difficult for the typical taxpayer to unlock medical tax breaks, anyone with severe health issues who suffers big out-of-pocket costs is eligible for big breaks should they itemize their tax return.”
Many people do not itemize because it takes much more time and effort to gather the receipts, make calculations and to determine what tax laws apply for each deduction. Itemizing will probably not benefit you if you do not own property or a business. As most Americans do not have investment apart from their retirement plan, itemizing is unlikely to provide them with benefits.
“Over half the country lives paycheck to paycheck, according to consumer surveys,” Woehrle told PNJ. “They are most likely not owners of capital.”
Take a good look at your financial situation to determine whether itemizing your deductions is worth the effort or going for the standard deduction is more beneficial.