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Itemized Deductions vs. the Standard Deduction: When to Itemize

February 20, 2014

Many taxpayers get confused about whether to itemize their deductions or take the standard deduction. Two out of three taxpayers use the standard deduction, but sometimes it is in your favor to itemize your deductions. Usually, you would want to calculate your tax liability using both the standard deduction and itemize deductions to see which method provides you the most benefit. If with your filing particulars, the total amount of deductible expenses is greater when you itemize deductions, you can pay less in taxes.

The expenses that you can deduct when itemizing your deductions include:

  • Medical expenses greater than 10% of your adjusted gross income. If you are 65 years old or older, the percentage is reduced to 7.5%
  • Charitable contributions
  • Mortgage interest
  • Interest and taxes on your home
  • Large uninsured casualty or theft losses
  • Casualty losses more than 10% of your adjusted gross income in addition to $100
  • Large unreimbursed employee business expenses
  • Miscellaneous deductions more than 2% of your adjusted gross income

In certain circumstances, taxpayers are not entitled to use the standard deduction and should instead itemize their deductions. These circumstances include:

  • You are married filing separately and your spouse itemizes deductions
  • You are filing a tax return for a short tax year because of a change in your annual accounting period, or
  • You are a non-resident or a dual-status alien during the year. You are considered a dual-status alien if you were both a non-resident and a resident alien during the year.

If you are a nonresident alien who is married to a U.S. citizen or a resident at the end of the year, you can choose to be treated as a U.S. resident. You may itemize your deductions on Schedule A (Form 1040).

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