Is itemizing your taxes worth the hassle?
Come tax time, every American wants to get the biggest possible refund.
But Uncle Sam already gives taxpayers a pretty generous starting point via the so-called “standard deduction,” a tax break granted to everyone when they file; the standard deduction for single filers this April is $6,300, while couples filing taxes together get a standard deduction of $12,600.
That means if you don’t have qualified expenses above those dollar amounts, you’re better off just taking the standard deduction on your Form 1040 and forgetting about the extra paperwork.
In fact, the vast majority of Americans rely on this standard deduction instead of filing itemized returns. According to the IRS, fewer than one-third itemize their taxes.
Still, just because fewer people itemize doesn’t mean you shouldn’t look into it, said Lisa Greene-Lewis, a CPA and tax expert with tax-preparation software providerTurboTax. That’s because many Americans who claim only a standard deduction could be leaving money on the table simply because they don’t know what they can claim to win a bigger refund.
“When people are rushing around doing their taxes at the last minute, it’s easy to leave out tax deductions or credits,” she said.
When does itemizing pay off?
Greene-Lewis said that while every tax situation is different, there are a few major categories that can sometimes put taxpayers above the standard deduction even without any other qualified expenses.
“Generally, if you own a home, you should itemize,” she said, because mortgage interest and local property taxes are both deductible on your federal return. In many real estate markets, these items alone can get you a bigger refund than what’s offered via the standard deduction.
Other big home-related items that can be itemized include points paid on your home loan in the last tax year, or any property losses caused by disasters like tornadoes or hurricanes for which you’re not reimbursed by an insurance company, Greene-Lewis added.
Another big reason to itemize is if you pay steep local or state income taxes, said Maria Alexeychuk for Hammer Financial Group just outside of Chicago.
“Whatever the state deems taxable that year is a deduction on your federal return,” she said. “It seems like nobody realizes that.”
That means if you make a decent wage and live in a state with relatively high income taxes, such as California, New York or Minnesota, you may want to itemize to get a break on your federal filing.
Big unreimbursed medical expenses or a large charitable donation to a qualified organization can also put you over the standard deduction, Alexeychuk said. And remember that even if these items can’t top the standard deduction by themselves, they may add up to a larger deduction when added up with other qualified deductions.
“There are numerous times where we’ve seen a young couple buy a house but then say, ‘Well, with the mortgage interest alone it’s not enough to itemize.’ But because they’ve never done an itemized return they just don’t realize all the other things they can write off,” she said.
There are certain situations where someone is highly unlikely to have many of the aforementioned expenses — most obviously being a single taxpayer in a rental or being an older American who has paid down their mortgage and has seen their children leave the nest.
But regardless of your personal situation or the specifics of your individual tax return, you should take any and all qualified deductions possible to earn a bigger refund from the IRS, she said.
“I don’t think itemizing makes you more likely to be audited. If you’ve got this stuff and it’s legitimate, write it off.” Alexeychuk said. “Just make sure you have your receipts for any itemized deductions.”
From USA Today