Itemized Deductions vs. Standard Deduction

There is a give-away embedded in the tax code called: deductions. When filing personal tax returns, deductions reduce taxable income. Each “personal taxable entity” is given the option of taking a standard deduction or itemized deductions. It is rarely a complicated choice because one chooses the greater of the deduction amounts. However, while not a complicated choice, it does generate some questions about how each are determined.

The standard deduction is available for anyone when filing 2015 Federal return.

• Married, filing jointly: $12,600
• Head of Household: $9,250
• Unmarried $6,300
• Married filing separately: $6,300
• even Dependents filing: $1,050

However, if one has itemized deductions greater than the standard deduction amount then one has the option to choose that amount and reduce taxable income even more.

What constitute itemized deductions? At the risk of being cavalier, anything on Schedule A. What is schedule A, you ask? It is the IRS sub-schedule of 1040 (literally called Form Schedule A) that helps one compute eligible itemized deductions.

Everything listed on sch. A is deductible but some deductible expenses are subject to limits. For example:

• Nonbusiness casualty losses are only deductible if greater than 10% of one’s Adjusted Gross Income (AGI).
• Medical expenses are limited to 10% of AGI, as well (unless you’re older than 65, then the deduction is limited to 7.5% of AGI).
• Miscellaneous expenses are limited to 2% of AGI (certain legal fees, tax prep fees, unreimbursed expenses from your employer, etc.)

Additionally, itemized deductions begin to be phased-out (disallowed) when your income reached a certain level:

• Married, filing jointly: $309,900
• Head of Household: $284,050
• Unmarried: $258,250
• Married, filing separately: $154,950

If you have any more questions on deductions (line 40 on Form 1040) please reach out: david@tunstallorg.com