Each year when you file your federal income tax return, you have a choice to make: claiming the standard deduction or using an itemized list of qualified deductions to calculate your taxable income. Sometimes the decision is easy. For instance, if you have a large mortgage or make substantial charitable donations, you’ll generally come out ahead by itemizing.
On the other hand, if you expect your total mortgage interest, property taxes, and charitable donations to be less than $12,600 (for 2015) and you’re married filing jointly, claiming the standard deduction typically makes sense. For singles, the 2015 basic standard deduction is $6,300. If you or your spouse is over 65 or blind, the standard deduction is higher.
When your situation is less clear-cut, planning can help tip the scales. For example, if you have a significant amount of out-of-pocket medical bills this year, consider increasing other deductions such as charitable donations before December 31. Remember, only qualified medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible. The threshold is 7.5% of AGI if you’re age 65 or older.
What else should you consider? If someone can claim you as a dependent, you can’t take the full standard deduction and you might be better off itemizing. Also, your total itemized deductions are limited when you’re single and your income exceeds $258,250 ($309,900 when you’re married filing jointly).
Give us a call for more information about the differences between standard and itemized deductions. We’ll help you make the choice that will maximize your tax savings.