The lingo of taxes often leaves many confused and frustrated. One of the first decisions most taxpayers face is whether to claim the standard deduction or itemize their deductions. So, what exactly do these two tax terms actually mean?
The standard deduction is a dollar amount determined by law and is used to reduce the amount of income on which you are taxed. To keep things confusing, this deduction varies according to your filing status. There are also additional standard deduction amounts for individuals who are blind or over age 65.
Itemized deductions are reported on Schedule A and consist of the total of things like mortgage interest, property tax on your home and charitable contributions. There are several other less common items that can go on the schedule A, like employee business expenses and tax preparation fees. In order for itemizing deductions to be worthwhile, the total of those deductions must exceed the standard deduction amount.
It’s important to understand that you can only use one or the other on your tax return. You cannot claim both the standard deduction and itemized deductions on the same return.
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