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Maximizing Your Tax Deductions: Standard vs. Itemized

What Is the Standard Deduction?

The standard deduction is a fixed amount that you can subtract from your taxable income to reduce the amount of tax you owe. It simplifies the tax filing process by eliminating the need to track individual expenses. The amount you can claim depends on your filing status—single, married, or head of household.

For the 2024 tax year, the standard deductions are as follows:

• Single or married filing separately: $14,600
• Head of household: $21,900
• Married filing jointly: $29,200

If you or your spouse are 65 or older or blind, you may qualify for an additional standard deduction. Refer to IRS Publication 501 for more details.

Pros and Cons of Using the Standard Deduction

Pros

• Simplifies tax preparation with no additional forms or calculations.
• No need to keep records or receipts throughout the year.
• Automatic qualification even without deductible expenses.

Cons

• May be less than your total itemized deductions.
• Not available if your spouse itemizes or if you’re claimed as a dependent.

What Are Itemized Deductions?

Itemized deductions are specific expenses that you can deduct from your adjusted gross income. Common examples include home mortgage interest, charitable donations, and qualifying medical expenses. To claim these deductions, you may need to provide documentation or keep records in case of an audit.

Common Itemized Deductions

• Mortgage interest: Deduct interest paid on the first $750,000 of your mortgage.
• State and local taxes: Deduct up to $10,000 in state and local taxes.
• Student loan interest: Deduct up to $2,500 in student loan interest.
• Medical and dental expenses: Deduct out-of-pocket expenses exceeding 7.5% of your adjusted gross income.
• Charitable contributions: Deduct contributions to qualified charity organizations.
• Casualty and theft losses: Deduct losses from federally declared disasters or theft.

Pros and Cons of Itemized Deductions

Pros

• May result in greater tax savings, especially with large deductible expenses.
• Potentially more beneficial for those in higher tax brackets.

Cons

• More complicated tax preparation requiring documentation and recordkeeping.
• May not be worth it if itemized deductions don’t exceed the standard deduction.

Should You Itemize or Take the Standard Deduction?

Choosing between standard and itemized deductions depends on which option offers the best tax savings. Here are three ways to estimate your savings:

1. Do a Gut Check

If you don’t have a mortgage, property taxes, large medical bills, or other major deductible expenses, the standard deduction is likely your best option.

2. Do a Quick Estimate

Estimate your potential itemized deductions. If they exceed the standard deduction, consider itemizing.

3. Do the Full Calculation

Gather all necessary documentation and calculate your total itemized deductions. Compare this total to the standard deduction and choose the option that offers the greatest savings.

Where to Find Help

If you’re still unsure, tax preparation software or a tax professional can help you determine the best option for your situation.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with ease.

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