Every year, the IRS gives taxpayers a choice between taking the standard deduction or itemizing deductions. Making an informed choice is crucial, as it can affect the amount of taxable income and the tax owed to the government.
According to Tom O’Saben from the National Association of Tax Professionals, "it's just the number that the government gives us that says, okay, here's your total amount of income, subtract this off and pay tax on what's left."
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O’Saben says the IRS adjusts the yearly standard deduction to keep pace with inflation, and it’s a flat amount based on one's filing status—be it single, married filing separately, or jointly, among others.
"Let's call it free money. It's a deduction that's going to reduce your taxable income," explains O’Saben.
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This year the standard deduction is $13,850 for someone filing as single or married filing separately. That’s an increase of $900 from last year.
Most people take the standard deduction but O’Saben tells clients before you do, do the math to see what the deduction would be if you itemized.
Itemized deductions can encompass a wide array of expenses, including charitable donations, mortgage interest, property taxes, and out-of-pocket medical expenses.
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"Let's see your actual expenses and then compare that to the standard deduction. And we take the higher of the two. You don't get both. You get one or the other, not both," O’Saben explains.
For more information you can visit IRS.gov
