There are a lot of decisions to be made during tax season.
You need to decide your filing status, the tax credits you want to claim, and whether you want to itemize your deductions or use the standard deduction.
However, it can be difficult to know if you are making the best decision.
There are benefits to using an itemized deduction or standard deduction to complete your return this tax season.
The term standard deduction refers to the portion of income not subject to tax that can be used to reduce your tax bill.
The amount of the standard deduction varies depending on your income, age, whether or not you are blind, and your filing status.
For the 2021 tax year, you are entitled to benefit from one of the following standard deductions:
- Single or married, separate deposit: $12,550
- Head of household: $18,800
- Married filing jointly or qualified widow(er): $25,100
Claiming the standard deduction is a great way to keep your taxes easy and simple, and it doesn’t require you to spend time tracking expenses.
An itemized deduction is an expense that can be subtracted from your adjusted gross income to reduce taxable income, thereby reducing the amount of taxes you owe.
Itemized deductions require more paperwork and expense tracking.
For example, you will need to provide receipts, bank statements, and credit card statements to the IRS; however, you can potentially reduce your taxable income even further this way.
Itemized deductions are divided into five main categories:
- medical and dental expenses
- donations to charity
- claims and thefts
What if you don’t know which method to choose?
A standard deduction and an itemized deduction are essentially just two different tax filing methods, and the goal is to choose which will make you the most money.
If you are unsure which method to choose, there are tools and advisors that can help you.
The first place you’ll want to check is the IRS’ Interactive Tax Wizard.
This tool is free and can provide answers to several tax law questions specific to your personal situation. ‘
The IRS also offers free tax assistance to seniors through a program called Tax Counseling for the Elderly; however, you must be 60 or older to qualify for the program.
You may also consider hiring a tax advisor.
According to the National Society of Accountants, the average fee for an advisor can range from $220 to $323.
Although a tax advisor can be expensive, an advisor can be worth the extra expense.
If you don’t want your refund delayed, review the eight common mistakes to avoid when preparing your tax return.
The Sun also discusses four tax tips if you’re filing for the first time.
Plus, we reveal the top tax changes for 2022 and five ways to boost your tax refund.
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