Every taxpayer gets a chance to reduce adjusted gross income to a lower taxable income level by claiming tax deductions.
Itemized deductions get a lot of attention, primarily because there are so many of them, and in many cases they require more calculations. But the tax fact is that around two-thirds of taxpayers each year claim the standard deduction.
For the 2014 filing season, those amounts -- yes, there is a standard deduction amount for each of the five filing statuses -- are going up a tad. The increases are thanks to the inflation adjustments that the Internal Revenue Service makes each year to about 40 tax provisions.
The standard deduction amounts for 2014 are:
- $6,200 for single filers and married people filing separate returns.
- $9,100 for head-of-household taxpayers.
- $12,400 for married couples filing jointly and qualifying widows/widowers.
Compared to 2013 returns, that's a $100 deduction increase for singles, $150 for heads of households and $200 for married joint filers.
Remember, these new amounts are for the 2014 tax season and returns that are due on April 15, 2015. But the amounts can help you with tax planning in the coming year.
Why go standard?
There are two reasons folks opt for the standard deduction.
One, it's easy.
Most years, the IRS prints the standard deduction amount on Form 1040A and Form 1040. Plus, there's no need to hang onto a mess of receipts and add them up when you do your taxes.
But the main reason that most of us claim the standard deduction is that our standard amount is more than our itemized expenses.
In many cases, the only thing that gets taxpayers over the standard deduction amount is homeownership. The addition of mortgage interest and property taxes often is enough to exceed the standard amount for filers. Add in charitable donations and then you'll want to fill out a Schedule A.
But if you don't own a home, or you've owned it long enough so that you're no longer paying a lot of interest on your loan, then the standard deduction is for you because it's more.
That's the key. You pick the larger deduction amount.
Deduction choices aren't written in stone. Every year, you get to choose which method, standard or itemized, you want to use.
So when the calendar rolls over to Jan. 1, 2014, note the new standard deduction amounts and consider whether you need to start hanging onto tax receipts.
Have you switched from one deduction method to another? Which way did you go, from standard to itemized or vice versa? Why?
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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."