To itemize or not to itemize? That is the tax question. Whether tis' wiser to suffer the slings and arrows of standard deductions, or take advantage of a sea of deductions, and by itemizing, utilize them....
Okay, Shakespeare and taxes may not be the best combination, but the original question above is still relevant in tax season. Do you take the simpler standard deduction, or itemize and try to gain further advantage? The IRS offers some advice regarding deductions in IRS Tax Tip 2016-21. The basic message: calculate your taxes both ways, but let us help you do it.
Start by making sure that you are eligible for standard deductions. There are cases where standard deductions are not an option — for example, when you and your spouse choose married filing separately status and your spouse itemizes his or her return. IRS Publication 17 can help you determine your eligibility.
Next, determine your standard deduction based on your status. For the 2016 tax season, the standard deduction for single or married filing separately is $6,300, $12,600 for married filing jointly or qualified widower status, and $9,300 for head of household status. Standard deductions can vary from this baseline for special conditions, such as being at least 65 years old or being able to be claimed as a dependent on someone else's taxes.
Now it is time to run the comparative calculation to see if you come out ahead by itemizing. The easiest way to perform this comparison is through the IRS Free File program. If your income is below $64,000, you can use the IRS Free File software that will automatically do the work for you. Based on the information you provide to Free File, the program will determine whether you would benefit from itemizing and will select and file the right forms.
Of course, you will need to supply the correct information to Free File — and that means having the information on your itemized deductions on hand. Look over the list of available deductions on Form 1040 and Schedule A, as well as the corresponding instructions, to see which ones apply to your situation, and gather the necessary paperwork and receipts that show the proper amounts to deduct. You must use Form 1040 and Schedule A to itemize; Form 1040A and 1040EZ do not allow for itemized deductions.
Deductible expenses include items like charitable gifts, interest payments on your home mortgage, unreimbursed medical or employee business expenses, property taxes, and casualty losses. Publication 17 can help you identify the deductions and look into potential income limits and other rules that can alter your deduction amounts.
If you can't use IRS Free File, you can use the 1040 form and do the calculation yourself. The instructions for Schedule A contain worksheets that will help you go through the calculation process. Calculate and compare the itemized deductions to the standard deduction for your category, and choose the larger of the two.
If you are still having difficulty, consider using the IRS Interactive Tax Assistant (ITA). It can assist with any questions you have regarding calculations and status.
Take some time to determine whether you could benefit from itemizing taxes. Many taxpayers have over the years. Do not miss potential tax savings and make 2017 "the tax season of your discontent."
This article was provided by our partners at moneytips.com.
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