Itemize VS. Standard Deductions!
Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing. Find out which way saves the most money by figuring taxes both ways.
Taxpayers need to add up deductible expenses they paid during the year. These may include expenses such as:
- Home mortgage interest
- State and local income taxes or sales taxes (but not both)
- Real estate and personal property taxes
- Gifts to charities
- Casualty or theft losses
- Unreimbursed medical expenses
- Unreimbursed employee business expenses
If a taxpayer doesn’t itemize, then the basic standard deduction for 2016 depends on their filing status. If the taxpayer is:
- Single – $6,300
- Married Filing Jointly – $12,600
- Head of Household – $9,300
- Married Filing Separately – $6,300
- Qualifying Widow(er) – $12,600
Check the Exceptions.
There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if the taxpayer is married filing a separate return and their spouse itemizes. In this case, the taxpayer’s standard deduction is zero and they should itemize any deductions.
File the Right Forms.
For a taxpayer to itemize their deductions, they must file Form 1040 and schedule A, Itemized Deductions. Filers can take the standard deduction on Forms 1040, 1040A or 1040EZ.
Do you have kids attending college!
Higher education costs paid in 2016 can mean tax savings when taxpayers file their tax returns. If taxpayers, their spouses or their dependents took post-high school coursework last year, they may be eligible for a tax credit or deduction.
For 2016, there are two tax credits available to help taxpayers offset the costs of higher education. The American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of income tax owed.
The American Opportunity Credit is:
- Worth a maximum benefit up to $2,500 per eligible student.
- Only for the first four years at an eligible college or vocational school.
- For students pursuing a degree or other recognized education credential.
- For students enrolled at least half time for at least one academic period during 2016.
- Taxpayers can claim the AOC for a student enrolled in the first three months of 2017 as long as they paid qualified expenses in 2016.
The Lifetime Learning Credit is:
- Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
- Available for all years of postsecondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of tax years
The tuition and fees deduction can reduce the amount of income subject to tax. This deduction may be beneficial for taxpayers who don’t qualify for the American Opportunity Credit or the Lifetime Learning Credit.
The Tuition and Fees Deduction is:
- Worth a maximum benefit up to $4,000,
- Claimed as an adjustment to income,
- Available even if a taxpayer doesn’t itemize deductions on Schedule A,
- Limited to tuition and certain related expenses required for enrollment or attendance at eligible postsecondary educational institutions.
- Beginning in 2016, to be eligible for an education benefit, a student is required to have Form 1098-T, Tuition Statement. They receive this form from the school they attended. There are exceptions for some students.
- They may only claim qualifying expenses paid in 2016.
- They can’t claim either credit if someone else claims them as a dependent.
- They can’t claim either credit, the Tuition and Fees Deduction for the same student or for the same expense in the same year.
- Income limits could reduce the amount of credits or deductions they can claim.