When Should You Detail Your Taxes?
How do you decide whether to take standard deductions or use detailed deductions ? Obviously, you’ll want to choose the one that lowers your annual gross income the most so that you pay less taxes. But how is this to be understood?
Calculate your detailed deductions
This year, the standard deduction is $ 12 400 for applicants filing personal documents and 24 800 US dollars for the people who are applying separately. For most people, the standard deduction covers more than the sum of their potential detailed deductions, which is why 87% of applicants choose the standard deduction. Generally, if you don’t have a mortgage, high medical expenses, or need to pay property taxes , you are likely to benefit from the standard deduction. According to Investopedia , you can list the following deductions:
- Mortgage interest of $ 750,000 or less.
- Mortgage interest of $ 1 million or less if accrued before December 16, 2017.
- Charitable contributions ( deducted up to 100% of Adjusted Gross Income (AGI) in 2020 ).
- Medical and dental expenses (over 7.5% AGI).
- State and local taxes on profits, sales and movable property up to USD 10,000.
- Game losses.
- Investment interest expense (i.e. interest paid on money borrowed to purchase taxable investments).
- US $ 2,500 in student loan interest.
- $ 250 for teachers buying school supplies.
If you are eligible for deductions based on this list, you will need to do a quick tally – are the potential detailed deductions totaling more than the standard $ 12,400 deduction for individuals or $ 24,800 if you are filing a joint file? If so, you will want to detail (in more detail, the IRS provides a line-by-line breakdown of detailed deductions here ).
Of course, you can also let a file service like Credit Karma do the calculations for you. Per Nerdvallet : “If you are using tax software, it is probably worth taking the time to answer all the detailed deduction questions that may apply to you. The program or your consultant can process your refund both ways to see which method yields a lower tax bill. Even if you end up using the standard deduction, at least you will know that you are coming out ahead. “
Please note that not all deductions need to be listed. IRA or HSA contributions, student loan interest (based on your income), $ 300 charitable contributions, and faculty expenses are considered overline costs , which means they may be claimed in excess of the standard deduction.
Bottom line
If your itemized deduction is greater than your standard deduction amount, you should itemize it. However, if the difference between listing and standard deduction is not significant, you can use standard deduction as it may be more convenient. If you do transfer, just make sure you keep your receipts in case you get audited (the IRS can check income from six years ago).
And if you are still having trouble deciding whether to be on the list or have a difficult tax situation, consider the services of a tax specialist to help you choose all of the options. This story was originally published in 2019 and has been updated on February 18, 2021 with updated context and new information.