The one thing in life that’s guaranteed is that you’ll have to pay taxes. Thankfully, though, the government opts not to force you to pay on your entire amount of income. When determining the amount of income for which you shall be taxed, the IRS uses two determinations of deductions: Above the Line, and Below the Line deductions. The “line” referenced is just that: a line on the Form 1040 where you input your Adjusted Gross Income. There are two types of below the line deductions: standard or itemized.
Standard Deduction
Basically, this deduction is a set amount of income that the government won’t apply tax to. Many people opt to take the standard deduction when filing their tax returns, as it can be worth between $6,300 to $12,600, and can save the taxpayer time by not having to itemize. All you have to do is state your filing status (single, married filing separately, or married filing jointly) and that you are opting for the standard deduction when you file. It’s easy and quick.
In 2015 the standard deduction per filing status, is:
- Single or Married filing separately – $6,300
- Married filing jointly or Qualifying widow(er) with dependent child – $12,600
- Head of household – $9,250
Itemized Deductions
By creating a list of each individual deduction, you may actually qualify for more savings at tax time. Taxpayers often opt to itemize when they have more to deduct in total than the standard deduction would net them. Taxpayers can opt to itemize mortgage interest, charitable donations, and medical expenses.
Which is the Best?
There’s no right or wrong deduction. It all depends on your individual tax situation. While taking the standard deduction is the fastest and simplest way to deduct expenses, other taxpayers find that taking the time to itemize can mean thousands of dollars in savings. Generally, people opt for the standard deduction when they don’t have time to itemize, don’t have documented proof of itemized deductions, or because they assume they don’t qualify for additional deductions.
You may want to consider itemizing your deductions if:
- You paid interest or taxes on your house
- You have a large amount of unreimbursed medical or dental expenses
- You made a large charitable contribution
- You experienced a casualty or theft loss not covered by insurance
- You have employee business expenses
