Itemized deductions are tax deductions that you take for various expenses you incurred during the tax year. They can sometimes exceed the standard deduction, meaning that itemizing on your tax return can make a huge difference in your tax bill. But itemized deductions aren't necessarily no-brainers. Here are some things you need to know about what itemized deductions are and what it means to itemize on your tax return.
What it means to have itemized deductions on your tax return
Itemized deductions are certain expenses allowed by the IRS that can decrease your taxable income. When you itemize on your tax return, you opt to pick and choose from the multitude of individual tax deductions out there instead of taking the flat-dollar standard deduction.
Advantages of itemized deductions
Disadvantages of itemized deductions
What it means to take the standard deduction
The standard deduction is basically a flat-dollar, no-questions-asked reduction in your adjusted gross income. When you take the standard deduction, you basically opt to take a flat-dollar deduction instead of picking and choosing from the multitudes of individual tax deductions out there.
Advantages of taking the standard deduction
Here are some big reasons people take the standard deduction instead of itemizing on their tax returns.
Should I itemize or take the standard deduction?
If your standard deduction is less than your itemized deductions, you probably should itemize and save money. If your standard deduction is more than your itemized deductions, it might be worth it to take the standard and save some time. Run the numbers both ways. If you’re using tax software, it’s probably worth the time to answer all the questions about itemized deductions that might apply to you. Why? The software or your advisor can run your return both ways to see which method produces a lower tax bill. Even if you end up taking the standard deduction, at least you’ll know you’re coming out ahead.
(Partially reprinted from nerd wallet.com)
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