Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.
Most taxpayers have a choice of either taking the standard deduction or itemizing their deductions. The standard deduction may be quicker and easier, but, itemizing deductions may lower taxes more, in some situations. It's important for all taxpayers to look into which deduction method best fits them.
New this year
Following tax law changes, cash donations of up to $300 made by Dec. 31, 2020 are deductible without having to itemize when people file a 2020 tax return.
Here are some details about the two methods to help people decide deduction to take:
The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.
Taxpayers benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions. They can use the Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount their standard deduction and if they should itemize their deductions.
Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they not allowed to use the standard deduction.
A taxpayer may benefit by itemizing deductions if any of following apply to their tax situation, they:
●Had large uninsured medical and dental expenses.
●Paid interest and taxes on their home.
●Had large uninsured casualty or theft losses.
●Made large contributions to qualified charities
Individual itemized deductions may be limited. Schedule A, Form 1040, Itemized Deductions can help determine what limitations may apply.