Should I itemize my taxes?
Depending on your situation, you could save more by not itemizing and taking the standard deduction.
A tax deduction decreases your taxable income, which in turn can lower your tax bill. There are generally two ways you can claim deductions on your federal income tax return: you can itemize deductions, or you can take the standard deduction.
A review of the standard deduction amount and what qualifies for itemizing can help you determine which is right for you.
When it comes to deductions, you generally want to choose the option that lowers your taxable income the most.
The standard deduction is a fixed amount, while itemized deductions are made up of a list of eligible expenses.
What is the standard deduction?
The standard deduction amount varies based on your income, age, filing status, and whether you’re blind, and changes each year.
If you’re married and filing jointly, your standard deduction for 2022 will be $25,900 (plus $1,400 per person age 65 or older). If you’re single or filing as an individual, your standard deduction will be $12,950 (plus $1,750 if age 65 or older).
How do tax rates factor in?
The rate at which your income is taxed can play a role in whether you choose standard or itemized deductions.
There are seven tax brackets, ranging from 10-37%. The highest bracket for single filers and married couples filing jointly in 2022 begins with taxable incomes over $539,901 and $647,851, respectively.1
What expenses can I itemize?
Expenses that qualify for itemized deductions include qualified mortgage interest, state and local income taxes, medical and dental expenses, and charitable contributions.
So…should I itemize?
There’s no substitute for running the numbers. Use an IRS Schedule A form to itemize your mortgage interest expense, charitable donations, medical expenses, state taxes and other itemizable expenses.
This is where significant out-of-pocket medical expenses or charitable donations could play a big role.
If your deductions put you over the standard deduction threshold, then itemizing will work for you. If you’re below the threshold, taking the standard deduction will make more sense.
Tax planning shouldn’t be a once-a-year activity. Consider these 6 year-round tax tips that could help lower your tax bill in April.