Most people dislike taxes but rarely realize there are legal ways to reduce them. The law allows everyone to deduct certain expenses from their taxable income. Everyone, especially small and self-employed businesses, should know what they can and cannot subtract from their taxable income.
The important thing to understand is the IRS’s criteria for tax deductions.
Karla Dennis, the CEO of Karla Dennis and Associates Inc., recommends that everyone have a comprehensive list of their tax write-offs. In addition, she highly recommends business owners educate themselves about tax deductions and their various types.
In her experience, most people are unaware of the difference between standard deduction and itemized deductions.
According to Karla, here are the major and most important things you need to know about standard and itemized tax deductions.
1. A standard deduction, Karla Says, is a deduction that the IRS or the government gives to every taxpayer based on their status. There are specific criteria for the standard deduction. If you fulfill those criteria, the IRS will automatically exempt a certain amount from your taxable income.
For example, the IRS will give you an automatic deduction from your overall income if you’re:
• Filing head of household
• Married filing jointly
• Married filing separately
2. The government or the IRS also allows you to list your deductions on your own. If you believe your deductions are higher than what the IRS would automatically grant you. In that case, you can list your deductions.
If the IRS approves your list, you will be granted the deductions. This type of tax deduction is commonly referred to as itemized tax deduction.
Which One to Choose?
There is one simple rule for deciding whether you should go for standard deduction or itemized deduction, says Karla, and that is which of the two deductions is higher. So, you should itemize your deductions and see if they exceed the IRS’ standard deduction. If your itemized deduction exceeds the IRS’ standard deduction, you should go for it.
According to Karla Dennis, the most important thing in this regard is to ensure that you itemize your deductions according to the rules set by the IRS. To correctly itemize your deduction, you also need to know what items you can and can’t itemize. Here are some items you can itemize:
• Amounts you paid for state and local income or sales taxes.
• Real estate taxes
• Charitable contributions that you paid in cash and your charitable contributions by donating items to charity.
• Personal property taxes
• The amount you paid for medical and dental expenses
• Mortgage interest
• Disaster losses.
How Can Karla Dennis and Associates, Inc. Help You?
Karla’s firm will help you properly itemize your deductions according to the limitations set for certain categories and see if they exceed the IRS’s standard deduction.
If that’s the case, they will help you deduct them from your taxable income. In addition, they will make sure you don’t miss any items. If going for the IRS’ standard deduction is better for you, they will advise you accordingly.