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Maximize Your Tax Savings: Standard vs. Itemized Deductions

When it comes to reducing your tax bill, understanding the difference between standard and itemized deductions is crucial. The IRS allows you to choose between these two options, and the right choice can save you a significant amount of money. In this article, we’ll explore both types of deductions and help you decide which one is best for you.

What Is the Standard Deduction?

The standard deduction is a fixed amount that you can subtract from your taxable income. This deduction is based on your filing status—single, married, or head of household. The beauty of the standard deduction is its simplicity. You don’t need to keep track of individual expenses or sift through receipts. Here are the standard deductions for the 2024 tax year:

• Single or married filing separately: $14,600
• Head of household: $21,900
• Married filing jointly: $29,200

If you or your spouse are 65 or older or blind, you may qualify for an additional standard deduction. Check IRS Publication 501 for more details.

Pros and Cons of Using the Standard Deduction

Pros

• Simplifies tax preparation
• No need to keep records
• Automatic qualification

Cons

• May be less than your total itemized deductions
• Not available if your spouse itemizes or if you’re claimed as a dependent

What Are Itemized Deductions?

Itemized deductions are specific expenses that you can deduct from your adjusted gross income. Common examples include home mortgage interest, charitable donations, and qualifying medical expenses. To claim these deductions, you’ll need to provide documentation or keep records of your expenses.

Common Itemized Deductions

• Mortgage interest: Up to $750,000 of your mortgage
• State and local taxes: Up to $10,000
• Student loan interest: Up to $2,500
• Medical and dental expenses: Exceeding 7.5% of your adjusted gross income
• Charitable contributions
• Casualty and theft losses

Pros and Cons of Itemized Deductions

Pros

• May result in higher deductions
• Potentially more savings for higher tax brackets

Cons

• More complicated tax preparation
• Requires good recordkeeping

Should You Itemize or Take the Standard Deduction?

Choosing between standard and itemized deductions depends on which option offers the best tax savings. Here are three ways to estimate your savings:

1. Do a Gut Check

If you don’t have a mortgage, property taxes, large medical bills, or other major deductible expenses, the standard deduction is likely your best bet.

2. Do a Quick Estimate

Estimate your potential deductions by adding up your mortgage interest, property taxes, state and local income taxes, and any other deductions. Compare this total to the standard deduction for your filing status.

3. Do the Full Calculation

Gather all necessary documentation and calculate your total itemized deductions. Compare this total to the standard deduction and choose the option that gives you the biggest deduction.

Where to Find Help

If you’re still unsure, tax preparation software can help you sort through your potential deductions. Better yet, consult a tax professional for personalized advice.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand that navigating tax deductions can be complex, especially when it involves mortgage interest. Our team of experts is here to help you make the best financial decisions. Call us today at 213-732-3074 for any mortgage service needs. Let us help you maximize your tax savings and achieve your financial goals.

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