Itemizing vs Standard Deduction: Should You Itemize Or Take Standard Deduction?

The moment you make a decision to prepare your taxes, most likely the first thing that comes to your mind is if you should itemize your deductions or take the standard deduction offered by the IRS.

Choices, Choices 

Tax deductions are a simple part of a theoretically simple tax reporting system.  If you prepare your own taxes, you know that this simply isn’t true.  Complicated tax forms can be quite a nightmare to fill out.  Ever helpful, the IRS gives you the option of simply taking a standard deduction instead of itemizing your deductions.  So, what should you do?  Should you itemize or take standard deduction? 

The standard deduction is considered the easiest tax deduction method mainly because it requires no calculations or supporting documentation of any kind.  You figure out your adjusted gross income and simply submit the amount for your classification.  This amount differs based on whether you are filing as single, married, older than 65 or have kids. 

Many individuals scoff at the mere thought of taking the standard deduction.  As with every tax issues, deciding whether or not to take the standard deduction is not that easy.  For those who have a fairly simple financial life and don’t have many deductions, the standard deduction, in most cases is the best choice.  For instance, if you make $45,000 as an employee of a company, rent a residence and don’t have any major medical bills or losses, the standard deduction is probably going to help you save more money than itemizing.  Unfortunately, you are never going to be certain until you take a stab at itemizing your deductions in a rough draft of a tax return. 

Itemizing your deductions is exactly what it sounds like.  You virtually go through your records and categorize each and every possible deduction.  These deductions are then subtracted from your adjusted gross income to get the final figure by which tax is determined using the tax tables.  Itemizing is the way to go if you have significant tax deductions or tax credits in your financial life.  As an example, you generally would prefer to itemize in case you own a home simply because mortgage interest can be deducted.  Usually, you want to itemize if you own a home, have a lot of medical bills, can claim a tax credit or suffered some kind of major loss.  Of course, there are other situations where it would be a good idea for you to itemize, but this provides you with an idea of the situation. 

If you have a simple financial situation, claiming the standard deduction may be the solution for you.  If life happens to be a little more complicated for you, then itemizing is more likely to help you save more on your tax bill.