Knowing the difference between the standard and itemized deduction might save you a lot of time and trouble, and some taxes to boot.

directory-106817_640The IRS gives taxpayers a choice of using the standard deduction or an itemized list of qualified deductions to calculate their taxable income. For taxpayers with large mortgages or charitable donations, it’s a no-brainer; they come out ahead by itemizing. For others, it boils down to a question of whether it’s worth the trouble of sifting through all their records and receipts.
To put things in perspective, the standard deduction for 2015 will be $6,300 for single filers, $12,600 for those married filing jointly. If you or your spouse are over 65 or blind, the standard deduction is a little higher. So if your total mortgage interest, property taxes, and charitable donations are normally less than those figures, you will probably be better off with the standard deduction.
But that’s not the end of it. If you have a large out-of-pocket medical bill in one year, it might tip the scale toward itemizing. Only qualified medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible, but the threshold is 7.5% of AGI through 2016 if you are age 65 or older. After 2016, it’s 10% for everyone. If you think you will qualify for a medical expense deduction this year, consider adding other deductions such as extra charitable donations before December 31 to maximize your tax savings.
Take note that if someone else can claim you as a dependent, you cannot take the full standard deduction, so you might be better off itemizing. Another wrinkle: Itemized deductions are limited when income reaches $258,250 for single filers, $309,900 for married filing jointly.
Keeping track of potential itemized tax deductions may be unnecessary in your situation, but before you make that call speak with a tax professional.

Are you wondering how your social security payments are taxed?

Did you sign up for social security benefits last year? If so, you may have questions about how those payments are taxed on your federal income tax return.

The good news is the formula is the same as prior years. That’s also the bad news, because the thresholds for determining taxability are not indexed for inflation, and did not change either. Those thresholds, or “base amounts,” remain at $32,000 when you’re married and file a joint return, and $25,000 when you’re single.

How much of your social security benefit is taxable? To determine the answer, calculate your “provisional income.” That’s your adjusted gross income plus tax-exempt interest, certain other exclusions, and one-half of the social security benefits you received.

crafts-279580__180When you’re married filing jointly, your benefits are 50% taxable if your provisional income is between $32,000 and $44,000. If your provisional income is more than $44,000, up to 85% of your benefits may be taxable. For singles, the 50% taxability range is $25,000 to $34,000.

In some cases, diversifying the types of other retirement income you receive can reduce the tax burden on your social security benefits. Contact us if you want more information or planning assistance.