No matter whether you choose to take standard or itemized deductions, you will pay federal tax on a smaller amount of your income. However, one will likely lead to a greater deduction than the other, depending on your situation.
Most taxpayers choose to take the standard deduction. As it is based on a fixed amount, it is a much faster process. For itemized deductions, in contrast, you need to list each eligible expense. If you have few or no expenses that qualify you for itemized deductions, the standard deduction will be the better option for you.
If you choose the standard deduction option, you will reduce the amount of income you pay taxes on by a set amount. For single taxpayers, that amount is $6,350. For married taxpayers filing jointly (as well as eligible widows and widowers) the amount is $12,700 and for head of households the amount is $9,350. The standard deduction is higher if you (or your spouse, in the case of joint filing) are aged 65 or older, blind, or both.
Itemized deductions are far more complex, but they may give you the chance to reduce your taxable income by a greater amount. This is the case if your combined allowable expenses equal more than the standard deduction. To determine whether this is likely the case for you, consider what can count toward itemized deductions.
You can save money from itemizing if you have a mortgage or a home equity loan. For a quick calculation of the savings this may lead to, compare your interest with the applicable standard deductible. If interest is higher than, or even close to, the standard deductible amount, you will likely benefit from itemizing.
All out-of-pocket medical expenses to doctors, dentists, and other medical professionals are deductible along with prescription medication, glasses, contact lenses, and medical supplies.
Charitable donations include money you gave to non-profit organizations and religious institutions. You can also deduct the value of donated items like clothing and furniture, provided you have a receipt.
State and Local Taxes
State, as well as city and county, taxes are all deductible.
You can itemize any large losses due to fire, wind, or flooding that were not covered by insurance.
Deductibles related to your profession can include dues to a union, subscriptions to work-related publications, business liability insurance premiums, the cost of protective clothing, equipment, tools, or supplies, mandated medical examinations, tuition costs for classes to learn skills needed at your current job, and expenses required for seeking a job in your field.
If you think that you may be able to save by opting for itemized deductions, it is worthwhile to hire a tax accountant. This will simplify the process and ensure that you receive all possible deductions. Bear in mind that there are numerous less-common, miscellaneous deductions that may apply to your unique situation.