When filing your taxes, you can either claim the standard deduction, or you can itemize your deductions. Both options lower the taxes you owe. Read on to determine which type of deduction can save you the most money.
What’s the Standard Deduction?
The standard deduction is a fixed dollar amount that reduces the income you're taxed on. About two out of every three tax returns claim the standard deduction. Your standard deduction varies according to your filing status. For the 2011 tax year, the standard deductions are:
- $5,700 if you're filing as single or married filing separately
- $11,400 if married filing jointly or qualifying widow(er)
- $8,400 if you qualify to file as head of household
The standard deduction is probably for you if:
- You have no expenses that qualify as itemized deductions (things like significant medical expenses and charitable donations)
- You want to eliminate the chore of itemizing your deductions
- You’re not the type to hang on to receipts. The standard deduction lets you off the hook, so you won’t need to show records of your expenses -- even in the event that you're audited by the IRS.
What Are Itemized Deductions?
Itemized deductions also reduce your taxable income. They vary based on the tax bracket you happen to fall into. For example, if you're in the 15 percent tax bracket, every $1,000 in itemized deductions knocks $150 off your tax bill.
The form you’d fill out to claim itemized deductions is Form 1040. You might benefit from itemizing your deductions if you:
- Have itemized deductions that total more than the standard deduction you'd receive
- Had large, uninsured medical and dental expenses
- Paid mortgage interest and real estate taxes on your home
- Had large, unreimbursed expenses as an employee
- Sustained significant, uninsured damage to your personal property -- caused by things like fire, flood and wind -- or losses resulting from theft
- Made large contributions to qualified charities
- Had large, unreimbursed miscellaneous expenses
You can still itemize deductions rather than claim the standard deduction, even if your itemized deductions total less than your standard deduction. You might want to do this if the tax benefit of itemizing on your state return is greater than the tax benefit you lose on your federal return by not claiming the standard deduction.
As of the 2010 tax year, itemized deductions have no limitations, so you can now deduct the full amount of your itemized deductions no matter how much money you make.
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