The IRS began issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter helps Economic
When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction – but not always. Let’s look at a few details about these two options.
The standard deduction amount increases slightly every year, and it varies by filing status. Factors that affect the standard deduction amount include the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.
Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction, is on page 4 of that form.
Not all taxpayers can take a standard deduction. Those taxpayers include:
- A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
- An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
- An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
Taxpayers choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:
- State and local income or sales taxes
- Real estate and personal property taxes
- Home mortgage interest
- Mortgage insurance premiums on a home mortgage
- Personal casualty and theft losses from a federally declared disaster
- Gifts to a qualified charity
- Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Some itemized deductions, such as the deduction for taxes, may be limited. For more information on these limitations or any other questions, don’t hesitate to contact the office.