You have more time to file your tax return this year, as the tax deadline has been extended to July 15, 2020 due to the coronavirus crisis.
Although you have a few extra months to file and pay 2019 taxes, you'll still want to minimize your bill. Claiming deductions can help, as they reduce the amount of your taxable income. If you have $50,000 in income but $15,000 in deductions, you pay taxes on only $35,000.
Naturally, you want the largest deduction possible so you're taxed on as little income as possible. To make that happen, you must decide if you're going to itemize or claim the standard deduction.
What does itemizing your deductions mean?
Itemizing means you claim deductions for specific things you spent on over the year. It's an alternative to claiming the standard deduction available to all taxpayers which, for the 2019 tax year, is worth:
- $12,200 for singles and married couples filing separately
- $18,350 for heads of household
- $24,400 for married couples filing a joint return
When you itemize, you forego this standard deduction. Instead, you deduct for specific financial transactions that have been classified by law as being deductible.
The value of your itemized deduction depends on the total value of all your deductible transactions during the year. It makes sense to itemize only if the individual deductions you're eligible for add up to more than the standard deduction for your filing status.
What are some common deductions you have to itemize to claim?
There are actually some deductions you can claim without having to itemize. For example, as long as your income isn't too high, you can claim a deduction for up to $2,500 in student loan interest paid -- even if you claim the standard deduction.
But some common deductions you can't take advantage of unless you itemize include:
- A deduction for interest on mortgages up to $750,000 (or up to $1 million if you purchased your home before December 15, 2017)
- A deduction for up to $10,000 in state and local taxes paid, including state income taxes and real estate taxes
- A deduction for medical expenses exceeding 7.5% of your income in 2019
While there are other deductions you have to itemize to claim too, for some taxpayers these three deductions alone exceed the standard deduction and make itemizing worthwhile.
Make sure to do the math and figure out whether itemizing makes sense
You don't want to itemize if you could get more tax savings by claiming the standard deduction instead. Itemizing can also make filing your taxes more complicated, and you have to hold onto more paperwork so you can prove you were entitled to deductions you claimed.
But it can be worth it if you find out your itemized deductions score you more tax savings -- so always add up the ones you're entitled to, and compare their value with the standard deduction. Then you can make a fully informed choice about the best way to file.
If it does turn out you're better off itemizing, be prepared to pay a little more if you use online tax filing software and make sure you've got your documentation ready just in case.