Every year, Americans file taxes in hopes of getting money back from Uncle Sam. One area that affects all tax payers is whether to take the standard or itemized deduction.

Standard deduction

Standard deduction is pre-determined amount that is deducted from your adjusted gross income. The amount you are eligible to take is largely dependent on your filing status. In 2013, the standard deduction was as follows:

• Single or married filing separately was allowed $6,100
• Married filing jointly or qualifying widower had a standard deduction of $12,200
• Head of household was allowed $8,950

More deductions was allowed for those 65 and older and less allowed if someone else can claim you as a dependent.

Standard deductions for dependents is the greater of $1,000 or the dependents earned income plus 350. A dependent is someone who is claimed on another person’s tax return. The person who claims the dependent enjoys the tax benefits which is why dependents get less on their own tax return.

Itemized deductions

Itemized deductions are your expenses you incur during the year that are eligible for special tax treatments. Examples of deductions that are eligible to be itemized include but are not limited to:

• Home mortgage interest
• State income taxes or sales taxes (but not both),
• Real estate and personal property taxes,
• Charitable contributions
• Job expenses – subject to 2% of adjusted gross income
• Medical expenses

These deductions can lower the amount of taxes you pay provided you can deduct them.

Itemized or standard deduction

Now that you have an idea of what deduction is, let’s go over standard and itemized deduction in a little more detail. You should start with itemizing your deductions first than comparing them to standard to make sure you’re getting the best possible tax benefit. If your total deduction is more than the standard amount for your filing status, then the itemized deduction will provide a greater tax benefit.

Itemizing deductions is done on Schedule An in form 1040.Itemizing deduction will benefit you if:

• The amount of the standard deduction is limited(filing status)
• You have large uninsured medical and dental expenses
• You pay interest and taxes on a home or personal property
• You have large unreimbursed employee business expenses or miscellaneous deductions
• You have large uninsured casualty or theft losses
• You make large contributions to qualified charities
• Itemized deduction are more than the standard deduction

There can also be a limit on some of your itemized deduction. If your adjusted gross income is more than:

Filling status                          Adjusted gross income

Single                                250,000

Head of household                        275,000

Married filing jointly                        300,000

Married filing separately (Both must pick the same deduction)    150,000

What if you do not qualify for the standard deduction and your itemized deductions are less?

Unfortunately, standard deduction is not for everyone. You are not eligible for standard deduction if:

• married filing separately and whose spouse is itemizing deductions
• a nonresident alien
• changing annual accounting cycle and you are filing a return for a period of less than 12 months

   

If you do not qualify for the standard deduction then you will have to use the itemized deduction irrespective of it is less than the standard.