Standard Deduction vs. Itemized Deductions

Most taxpayers have a choice: take a standard deduction or itemize their deductions. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed.

The standard deduction is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions or taxes. The standard deduction is higher for taxpayers who are 65 or older or legally blind. If you have a choice, you should use the method that gives you the lower tax.

You will benefit from the standard deduction if it is more than the total of your allowable itemized deductions.

Persons Not Eligible to Take the Standard Deduction

Your standard deduction is zero and you must itemize deductions if:

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

Note: If you are a nonresident alien who is married to a U.S. citizen or resident at the end of the year, you can choose to be treated as a U.S. resident. (See Publication 519, U.S. Tax Guide for Aliens.) If you make this choice, you may take the standard deduction.

If you can be claimed as an exemption on another person’s return (e.g., your parents’ return), your standard deduction may be limited.

Higher Standard Deduction for Taxpayers Age 65 or Older

If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. You are considered 65 on the day before your 65th birthday. Therefore, you may take a higher standard deduction if your 65th birthday was on or the day before January 1.

Higher Standard Deduction for Blindness

If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. You qualify for this benefit if you are totally or partially blind.

You may take the higher standard deduction if your spouse is age 65 or older, or blind and:

• You file a joint return, and/or
• You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer.

You cannot claim the higher standard deduction for an individual other than yourself and your spouse.

Standard Deduction for Dependents

The 2013 standard deduction for an individual for whom an exemption can be claimed on another person’s tax return is generally limited to the greater of (a) $1,000, or (b) the individual’s earned income for the year plus $350 (but not more than the regular standard deduction amount).

Standard Deduction for 2013 for Most People:

In addition to the standard deduction, people 65 and older or blind receive an additional $1,200 if married, and $1,500 if single.

Who Should Itemize

You should itemize deductions if your total deductions are more than the standard deduction amount. Also, you should itemize if you do not qualify for the standard deduction, as discussed in the “Persons not Eligible for the Standard Deduction” section.

You should first figure your itemized deductions and compare that amount to your standard deduction to determine you are using the method that gives you the greater benefit.

When to Itemize

You may benefit from itemizing your deductions on Schedule A (Form 1040) if you:

• Do not qualify for the standard deduction or the amount you can claim is limited;
• Had large uninsured medical and dental expenses during the year;
• Paid interest and taxes on your home;
• Had large unreimbursed employee business expenses or other miscellaneous deductions;
• Had large uninsured casualty or theft losses;
• Made large contributions to qualified charities, or
• Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled.

Changing Your Mind

If you do not itemize your deductions and later find that you should have itemized, or if you itemize your deductions and later find you should not have, you can change your return by filing Form 1040X, Amended US Individual Income Tax Return.

Married Persons Who Filed Separate Returns

You may change methods of taking deductions when you and your spouse both make the same changes. Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change.

You and your spouse may use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. You both must use the same method of claiming deductions. If one spouse itemizes deductions, the other spouse should itemize; otherwise, he or she will not qualify for the standard deduction.

We can assist you regarding deductions or any other tax assistance you may need. For more information contact Henssler Financial at 770-429-9166 or experts@henssler.com.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.