If you’re new to filing taxes, you might be researching things like what itemizing your taxes means, what the standard deduction is, and what happens if you file your taxes late. If you’re wondering about itemizing your taxes, it can help you get a bigger refund depending on your deductible expenses, but it’s not right for everyone. Here are some pros and cons to help you decide if itemizing is the best option for you:
To understand itemizing, it’s essential to understand how the standard deduction works. For U.S. federal income tax purposes, the standard deduction is a dollar amount that reduces the taxable income of most taxpayers. The standard deduction is generally adjusted yearly to accommodate inflation. For 2022, the standard deduction is $12,950 for single filers, $25,900 for married couples filing joint returns, and $19,400 for heads of household.
Taxpayers who itemize their deductions may be able to deduct individual items such as mortgage interest, home office expenses, and charitable contributions. The total of these deductions must exceed the standard deduction to result in a lower tax liability. Itemizing your deductions requires keeping track of expenses throughout the year and saving receipts.
Itemizing your taxes can come with several benefits. Here are a few:
You can deduct a wide range of expenses. When you itemize your taxes, you can deduct a wide range of expenses, including charitable donations and home office expenses. If you have a lot of deductible expenses, this can potentially help you save a significant amount of money come tax season.
It can lower your taxable income. Itemizing your deductions can help you reduce your taxable income, which can ultimately help you save money on your taxes. This is because the lower your taxable income, the lower your tax bill will be.
There can be drawbacks to itemizing your taxes as well.
It can be time-consuming. Itemizing your taxes can be time-consuming, especially if you have a lot of expenses to deduct. This is because you’ll need to keep track of all your expenses throughout the year and have documentation to back them up.
It can be complicated. There are a lot of rules and regulations that come with itemizing your deductions—because of this, itemizing your taxes can be a complicated process, especially if you’re not familiar with the tax code.
You might end up taking the standard deduction anyway. Although itemizing your deductions can help you save money on your taxes, there’s a chance you might do all the work and find out that itemizing would result in paying more taxes. You might save all your receipts, add up your expenses, and find out that the standard deduction is higher than the total of your itemized deductions anyway.
Choosing whether to itemize or take the standard deduction depends on your personal finances. If you’re not sure whether you should itemize, a tax professional can provide guidance. They can look at your finances and help you decide which option is right for you.