Itemized Deductions

Hi, I’m Bette Hochberger, CPA, CGMA. On today’s #TaxTipTuesday, I will discuss some benefits of itemizing deductions. First, let’s start by explaining the standard versus itemized deductions.?

Standard Deduction

The standard deduction is a fixed amount that reduces your taxable income, as set by the?IRS?for each tax year. It is a deduction available to all taxpayers and intended to simplify the tax filing process. Instead of listing out and calculating individual expenses, taxpayers can take the standard deduction if it benefits them.

The standard deduction amount is based on your filing status, age, and whether or not you are claimed as a dependent on someone else's tax return. For the tax year 2022, the standard deduction amounts are as follows:

• Single filers and married filing separately: $12,950
• Married filing jointly and qualifying widow(er)s: $25,900
• Heads of households: $18,550

It's important to note that if you choose to take the standard deduction, you cannot also itemize your deductions. You should always choose the deduction method that gives you the greatest tax benefit.

Itemized Deduction

Itemizing deductions means listing out and reporting all of your eligible expenses on your tax return in order to reduce your taxable income and potentially lower your tax liability.

When you file your taxes, you can choose to take the standard deduction provided by the IRS, or you can itemize your deductions by listing out and totaling up your eligible expenses for the tax year.

Eligible expenses that can be itemized include things like state and local taxes, mortgage interest, charitable donations, medical expenses, and certain work-related expenses.

The Benefits of Itemizing Deductions

• Lower taxable income: By itemizing your deductions, you may be able to reduce your taxable income more than the standard deduction would allow, potentially resulting in a lower tax bill.
• Maximizing tax savings: Itemizing can help you maximize your tax savings by claiming all eligible expenses and reducing your overall tax liability.
• Claiming eligible expenses: Some expenses, such as charitable donations and medical expenses, may only be deductible if you itemize your deductions. You can claim all eligible deductions by keeping track of these expenses and itemizing them.
• Flexibility: Itemizing gives you more flexibility in reducing your tax liability, as you can choose which expenses to deduct and in what amounts.
• Higher tax refunds: If your itemized deductions exceed the standard deduction, you may be eligible for a higher tax refund.

It's important to remember that itemizing?deductions?can be more time-consuming and complicated than taking the standard deduction, and you may need to provide documentation and receipts to support this. As I’ve mentioned before, you should choose the deduction method that gives you the greatest tax benefit.

Well, that’s it for today. I hope you learned something new, and as always, stay safe, and I will see you next time,