You’ve heard that itemizing your expenses could save you money on your tax return. But you don’t want to go to all the trouble of itemizing every deductible expense you accrued over the year only to discover the standard deduction is going to get you a bigger refund.
How do you know whether it’s worth your time to itemize? In today’s post, we examine a few core things to understand in making this determination.
What is the standard deduction?
First things first, you need to understand your starting point of comparison: your standard deduction. When you file your tax return, you can either itemize your expenses or you can choose the standard deduction. If you believe the sum of your itemized expenses would exceed the standard deduction, then it’s probably worthwhile to itemize.
For tax year 2017, the standard deduction for a single person–or married filing separately–is $6,350. For married couples filing jointly, the deduction is twice that: $12,700.
So do some quick mental math and estimate whether your expenses would be more or less than your standard deduction. Here are some factors to consider:
Which expenses can be deducted?
- Home expenses: If you’re a home owner, this will typically be your biggest deductible expense. You can deduct mortgage interest and property taxes–which by itself can often put you over the standard deduction threshold.
- Local taxes: If you’re like most people, you may not realize you can actually deduct state and local taxes on your federal return.
- Charitable donations: If you make any donations–e.g., cash, physical gifts, property–to an IRS-approved charitable organization, you can deduct the value of your contributions.
- Medical expenses: If you had significant medical expenses that you paid for out of pocket, these can also put you over the tipping point–enabling you to save more than with the standard deduction.
In summary, if you’re a single, healthy person and you rent your home, chances are low that you’ll have enough deductible expenses to warrant itemizing. However, understanding your standard deduction and the types of expenses that can be included in itemized deductions gives you a good foundation to make an educated guess about whether itemizing is worthwhile for you.