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Everybody thinks it is best to itemize deductions. But is it?

Posted July 2015

In order to itemize, it means you must have allowable itemized deductions that exceeds the "standard" amount (or be required to use itemized if married and filing separately … but that's a whole other subject).  For 2015, the standard deductions are $6,300 for Singles, $12,400 for Married couples filing jointly, and $9,250 for Head of Household status.

If you live in a state with income taxes, own a home with mortgage interest, real estate taxes, and perhaps make charitable contributions, you might have an amount that exceeds the standard deduction.  And so you will be able to itemize.  But remember, you had to first actually spend that money before you were able to use the deduction.  If you are in a 25% tax bracket, it means you spent a $1 to save $0.25 in taxes.  So there was still a net cost to you of $0.75.

You also are required to keep receipts, keep proof, that you actually paid all those deductions.  There are also strict rules on charitable contributions which often trip people up when calculating what is allowable.

What proof do you need to claim the standard deduction?  Nothing?

How much do you have to spend in order to claim a standard deduction?  Nothing.  Zip. Zilch. Nada.  It is a freebie.

So can you save taxes if you itemize deductions?  Probably?  But it comes at a cost and part of that cost is the amount you spent that is not saved by taxes.  That obviously doesn't mean you shouldn't buy a house, give to charity, etc. 

What it means is that you should understand better what your economic decisions may mean in terms of taxes.  And who better to help than your friendly CPA.

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