When you file your personal income tax return, you have a choice between taking a standard deduction and taking itemized deductions. The correct decision helps to reduce your income taxes as much as possible.

When calculating your taxable income (the amount of income on which you will pay income taxes), the IRS allows individuals to take a standard deduction based on your filing status. For 2014, married individuals are eligible for a standard deduction in the amount of $12,400; singles may take $6,200. This deduction is subtracted from your income, and you pay taxes on whatever is left.

In place of the standard deduction, the IRS allows individuals to deduct a combination of several everyday expenses. These expenses include:

  • Medical

  • Miscellaneous taxes, such as state, local, and property taxes

  • Mortgage interest

  • Charitable contributions

  • Casualty or theft losses

  • Unreimbursed employee expenses (such as job travel, education, etc.)

  • Investment and tax preparation fees

If the combination of these expenses is greater than the standard deduction, you typically will want to itemize your deductions. In some cases, it is also an advantage to itemize deductions even if the total does not exceed the standard deduction, since your decision on your Federal tax return must generally be used on your State tax return as well. Your tax professional will be happy to help you evaluate whether this is the case in your situation.

Note that itemizing deductions requires that you keep track of a greater number of expenses and receipts throughout the year.  For instance, if you choose to itemize deductions, you must have copies of all donation receipts, as well as any other receipts which relate to the expenses you list on your itemized return.  As a taxpayer, you must evaluate whether this increase in recordkeeping requirements is worth the savings you receive from itemizing deductions.

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