Loma explains when to itemize deductions instead of taking the standard deduction. Itemizing only saves money if your medical expenses, mortgage interest, charitable donations, and other allowable costs add up to more than the standard deduction amount. Calculate each category, sum them, and compare to see which option gives you a bigger tax break.
Chapters
Hi, my name is Loma. I teach entrepreneurs business and money management skills. We're going to go over your deductions. Every year the IRS changes how much the standard deduction is going to be. You have the option of choosing standard deductions or itemized deductions. Let me start with what itemized deductions is. There are certain types of expenses that the IRS will allow you to deduct, but the catch-22 about this situation is that all of the itemized deductions that you list, they have to add up to at least the same as what this standard deduction is. So if it doesn't add up to more than the standard deduction, then there's no need to use the itemized deduction option. For most people, the standard deduction ends up being more than how much it would be if you were to itemize your deductions because the IRS has so many different rules. An example would be like medical expenses, but they also have rules about each of these different types of expenses. For example, say if your income is $10,000, your medical expenses that they'll allow you to deduct, they'll only let you if your expenses reach a certain percentage of your income, and if it doesn't reach that amount, then they won't let you count it. Another example of, of an expense that you can count, that you can itemize, is if you're paying a mortgage on a house and the interest that you pay on the mortgage, that amount is deductible. You can go through each one to see what qualifies, what type of expenses, even donations that you would have given to the church, the miles that you drove to your doctor appointments, the miles that you drove to the charities, um, any investment interest, other deductions. If you had a casualty, a loss from a hurricane, tornado, theft, car accident, those type of things, you would have to enter that information in each section. And each section has its own different rules that apply. And then once all of that is calculated, you'll be able to see how much it added up to in comparison to your standard deduction. And then you can make the decision there which one turned out to be the higher number, because you want the largest deduction possible. It doesn't hurt to go ahead and do this, but it is a little bit of work that you have to put in to calculate all the information that needs to go in here. There's things you might have to research, some information, so you can actually fill out your itemized deduction properly and see whether or not it actually adds up to more than your standard deductions. Click the link to take my quick tax quiz.
