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Should I present my tax relief or take the standard bill? – The Motley Fool



One of the biggest decisions you need to make when submitting your taxes is whether you want to specify your deductions or take standard deductions. This dictates how much your income is taxable and therefore how much you owe so you won't make the wrong choice. But if you are new to filing taxes, or if you have undergone a major lifestyle change such as starting your own business, you may not know which offers the best deal. Here's a brief guide to help you decide.

  Pen and calculator tax bill

Image source: Getty Images.

Standard deduction

Most people take standard deductions. This amount is based on your tax application status, age, and whether you are blind. Here is the standard deduction for each tax application status for the tax year 201

8:

Tax Status

Standard Deduction

Single

$ 12,000

Married, Filing Jointly

$ 24,000

Head of 19659009] $ 18,000 [19659010] Married, filing separately

$ 12,000

Qualifying widow

$ 24,000

Data source: Internal Revenue Service.

If you accept the standard deduction, the taxable income is automatically reduced by this amount. If you are an individual who earned $ 50,000 in 2018 and you take the standard deduction, you would reduce your taxable income by $ 12,000 and you would only pay income tax on the remaining $ 38,000.

Simple filers and heads can add another $ 1,600 to their 2018 standard deduction if they were 65 or older or legally blind by January 1, 2019. If you were over 65 and legally blind, you could add $ 3,200. Qualifying widow (s) and spouses, either jointly or separately, may require an additional $ 1,300 per day. Spouse over 65 or blind, or an additional $ 2,600 for a spouse who is blind and over 65.

Provisional Deductions [19659005] It makes sense to set your tax deductions if you believe the specified deductions you qualify for exceed the normal deduction for your tax reporting status. You can take tax deductions for charitable donations, tax on deferred pension account, mortgage interest and medical expenses exceeding 7.5% of your adjusted gross income (AGI) – your income minus certain deductions – including in 2018, among other things. Medical expenses exceed 10% of your AGI in order to be considered a deductible expense. Self-employed may also write off expenses associated with their business, including a home office, supplies and inventory, and business travel.

You can find out your total specified deductions by completing the IRS Schedule A. If you use tax-filing software, it should ask you questions to determine which tax deduction you qualify for. Once you have listed all your deductions, it must also tell you if the standard deduction will save you more money.

There are a few times when you may not have a choice but to specify your deductions. If you are married but submit separately, you cannot take the fixed deduction if your spouse specifies his or her deductions. Some foreign foreigners must also have no choice but to specify deductions.

If you decide to specify your tax deductions, remember that you need proof of the expenses you deduct. This means receipts for medical and business expenses, copies of usage bills, if you write off a home office and evidence of charitable and pension contributions. You do not usually need to submit these documents when you load your taxes, but if you are audited, the government may waive any tax credits you claimed without evidence.

If you use tax filing software or an accountant, it should not be difficult to determine if you need to specify your deductions or claim a standard deduction. But it still pays to understand how it works because what suits you a year may not be right next year. The standard allowance can change, or a year you can get a serious accident and owe much in medical bills. In that case, you may be able to enter deductions even if you have not before.


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