When it comes to individual income tax, you likely won’t be liable for the full amount of salary you earned. Instead, you’ll be able to take deductions to reduce your total taxable income. However, not all deduction options are the same. You’ll likely have to decide whether to file with standard or itemized deductions. To help you weigh each choice, here’s what to know about these options and how they will impact your tax preparation process.

What’s the Benefit of a Standard Deduction?

The standard deduction is a specific amount that you can subtract from your total taxable income. These amounts are established by the International Revenue Service (IRS) and are dependent on whether or not you’re filing as a single, married, or head of household taxpayer.

In 2020, these amounts have increased slightly from previous years to provide standard deductions of:

• $12,400 for single taxpayers.
• $24,800 for married filers.
• $18,650 for heads of households.

Taking the standard deduction can help bring you to a lower tax bracket, which would reduce the amount you have to pay the IRS. This option is the simplest and can save you time. It makes sense for those who wouldn’t be able to deduct as much by itemizing; however, going this route could prevent you from further savings if you have a significant amount of tax-deductible expenses.

What’s the Benefit of Filing With Itemized Deductions?

Itemizing during tax preparation allows you to deduct specific eligible expenses instead of taking the standard deduction. If you have enough itemized expenses, you may be able to reduce your total taxable income much more than what you’d have with the standard deduction.

Popular itemized deductions include charitable contributions, interest paid on loans, medical expenses, and tax preparation fees. However, there are many other possible deductions, so you should review your opportunities with a certified public accountant.

Although itemizing can help you save more money than the standard deduction, listing these expenses can take time. You’ll also need to have some proof of these expenses—such as receipts—if you are audited by the IRS.

If you have many deductions to calculate, knowing how to list them on your return can be challenging. Fortunately, the accountants at William G. Molitor, CPA, will simplify the process by reviewing your finances in-depth and assisting with tax preparation. Based in Saint Peters, MO, these professionals will help make sure you’re taking advantage of all applicable deductions and that you’re compliant with IRS regulations. To learn more about their tax planning services, visit their website. For a consultation with a certified public accountant, call (636) 926-0502.