WHILE YOU DON’T HAVE much choice when it comes to paying taxes, you can benefit from significant tax deductions that reduce the amount you owe.
Tax Deductions are especially important now that personal exemptions have been eliminated. In the past, taxpayers could claim an exemption of $4,050 for themselves and each of their dependents. However, those exemptions were eliminated for the 2018 tax year under the Tax Cuts and Jobs Act, making deductions now the prime way to reduce taxable income.
Taxpayers have two deduction options: a standard deduction or itemized deductions. While the standard deduction is the government’s built-in subtraction that you can take while preparing your taxes, itemizing is composed of individual deductions that, together, can help lower the amount of taxable income you pay.
Standard Tax Deduction
To compensate for the loss of personal exemptions, the standard deduction was nearly doubled for the 2018 tax year, and it was again adjusted upward for 2019. Depending on your tax-filing status, you are entitled to take one of the following standard deductions:
- Single or married filing separately
- Head of household
- Married filing jointly or qualified widow(er)
Here are the key benefits of the standard deduction:
- It’s easy, convenient and saves time.
- Some taxpayers qualify for a bigger deduction.
- Anyone can claim it.
Itemized Tax Deductions
Unlike the standard deduction, itemized deductions can result in a different amount for each taxpayer. Itemized deductions are claimed on a Schedule A form and are broken down into five main categories:
- Medical and dental expenses.
- Taxes you paid.
- Interest you paid.
- Gifts to charity.
- Casualty and theft losses.
Here are the benefits of itemized deductions:
- You can claim more expenses.
- You can save more money in taxes.
Should You Itemize Tax Deductions?
Anyone with deductible expenses that exceed the standard deduction should itemize.
For many people, it could be hard to clear that amount unless they have mortgage interest or property taxes to deduct. “The standard deductions are designed for people who don’t own a home,” Speiss says. Unless someone has significant charitable gifts or a major medical event, it may difficult to find enough deductions to itemize otherwise.