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standard deduction Archives - R. Darren Sanford, CPA, CGMA
Mar 132015
 
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Standard Deduction

For tax year 2015, all taxpayers will see a slight bump in the standard deduction over the 2014 amounts. The standard deduction rises to $6,300 for single and married filing separately filing statuses, up from $6,200 for tax year 2014.  Married filing jointly filers will see an increase in the standard deduction to $12,600, up from $12,400 for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.

The decision to itemize deductions will depend on whether or not the deduction exceeds the standard deduction amounts.  However, for married filing jointly taxpayers, if one spouse itemizes, the other spouse must also itemize.

For more information and assistance with determining the amount of your standard deduction, go to How much is my standard deduction.

Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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Mar 282014
 
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Itemized vs. Standard Deductions: Six Tips to Help You Choose

When you file your tax return, you usually choose to itemize your deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit.

Here are six tips to help you choose:

1. Figure your itemized deductions. Add up deductible expenses you paid during the year. Deductible expenses as itemized deductions include, but are not limited to, the following:

  • 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

Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax for more details.

2. Know your standard deduction. If you don’t itemize, your basic standard deduction for 2013 depends on your filing status:

  • Single $6,100
  • Married Filing Jointly $12,200
  • Head of Household $8,950
  • Married Filing Separately $6,100
  • Qualifying Widow(er) $12,200

Your standard deduction is higher if you’re 65 or older or blind. If someone can claim you as a dependent, that can limit the amount of your deduction.

3. Check the exceptions. Some people don’t qualify for the standard deduction and therefore should itemize. This includes married couples who file separate returns and one spouse itemizes.

4. Use the IRS’s ITA tool. Visit IRS.gov and use the Interactive Tax Assistant tool to help determine your standard deduction.

5. File the right forms. To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

6. File Electronically. You may be eligible for free, brand-name software to prepare and e-file your tax return. IRS Free File will do the work for you. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Otherwise, you may file electronically with commercial software, or through a paid preparer.

Have a more complex tax situation and need a paid preparer?  Contact me below:

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Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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Feb 082014
 
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More often than not a taxpayer is surprised with the resulting tax effect of having multiple jobs. At each of the jobs, the taxpayer is sure they are having enough federal income tax withheld to cover their tax when tax filing season comes around. However, that is not always the case and generally results in a substantially lower refund or greater amount of tax due than expected.

Here is an example of how your refund can change when you enter a second or third Form W-2 in your tax return.

Let’s assume that you have (2) Forms W-2 for tax year 2013, both for exactly $10,000, and both have zero withholding in Box 2.

You enter your first Form W-2 into your tax software and it tells you that your taxable income is zero and your refund is zero.

This is how your tax would be computed:
W-2 Income of $10,000;
Less:  Personal Exemption of $3,900 (the personal exemption amount for tax year 2013);
Less:  Standard Deduction of $6,100 (the standard deduction amount for Single filing status for tax year 2013);
Equals taxable income of zero.  The corresponding amount of tax would be zero.

Now, assume you enter the second Form W-2. The amount of your tax changes.  Here’s why:

Income from (2) Forms W-2 equals $20,000 ($10,000 each)
Less:  Personal Exemption of $3,900
Less:  Standard Deduction of $6,100
The taxable income is now $10,000 ($20,000 less $3,900 and $6,100).
Assuming a 10 percent tax rate, the tax due would be $1,000.

In the first w-2, the personal exemption and standard deduction were enough to offset the income completely, but when the second Form W-2 is entered, the same amount of personal exemption and standard deduction now applies to the total of the two. That’s why the amount of refund or tax due changes when a second Form w-2 is entered.

In other words, the higher the income, the less effect the personal exemption and standard deduction have on your overall tax situation.

In addition, there is a possibility that the second or third Form W-2 put you into a higher tax bracket. Many times, when someone has multiple jobs, the employers withhold at a lower tax rate, based on the information you have provided them on Form W-4. But when the income from all Forms W-2 is added together, your tax on the combined amount is greater than that of the tax computed on the individual amounts at each separate employer.

One way to circumvent this problem is by having your second or third employer withhold extra federal income tax from your paycheck. You can do this by filing a new Form W-4 with your employer and indicating the amount you wish to be withheld in addition to the regular withholding.

Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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