One of the first decisions taxpayers must make when completing a tax return is whether to take the standard deduction or itemize their deductions. There are several factors that can influence a taxpayer’s choice, including changes to their tax situation, any changes to the standard deduction amount and recent tax law changes.
Generally, most taxpayers use the option that gives them the lowest overall tax.
As taxpayers begin to think about filing their tax return, here are some things they should know about standard and itemized deductions.
Standard deduction The standard deduction amount increases slightly every year. 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.
Most filers who use Form 1040 can find their standard deduction on the first page of the form. The standard deduction for most filers of Form 1040-SR, U.S. Tax Return for Seniors, is on the last page of that form.
A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. Nonresident aliens who are married to a U.S. citizen or resident alien, however, can take the standard deduction in certain situations.
Itemized deductions Taxpayers who choose to itemize deductions may do so by filing Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim can include:
State and local income or sales taxes.
Real estate and personal property taxes.
Home mortgage interest.
Personal casualty and theft losses from a federally declared disaster.
Gifts to a qualified charity.
Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income.
Some itemized deductions, such as the deduction for taxes, may be limited. Taxpayers should review the instructions for Schedule A Form 1040 for more information on limitations.
The IRS issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2023, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
65.5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.
22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022.
14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.
These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
Here’s a short checklist to help taxpayers choose a tax preparer for the upcoming filing season
Tax filing season will be here soon. As people begin to gather their documents and receipts in preparation of filing a tax return, many are also choosing to use a professional tax return preparer. Anyone with an IRS Preparer Tax Identification Number can be a paid tax return preparer. However, tax return preparers have differing levels of skills, education and expertise. Choosing a tax return preparer wisely is important because taxpayers are ultimately responsible for all the information on their return, no matter who prepares it for them.
Taxpayers can start their search with the IRS Directory of Preparers When looking for a tax professional, taxpayers can search the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs and attorneys, as well as those who participate in the Annual Filing Season Program.
Before hiring a preparer, taxpayers shouldmake sure they know what they’re getting. They can do this by:
Asking about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts. Taxpayers should be suspicious of any preparer claiming they can get larger refunds than other tax preparers.
Asking if the preparer plans to use e-file. The fastest way to get a tax refund is by e-filing and choosing direct deposit.
Making sure the preparer will be available if needed. People should consider whether the individual or firm will be around for months or years after filing the return. It’s possible they’ll need the preparer to answer questions about the preparation of the tax return later.
Ensuring the preparer signs and includes their PTIN. Paid tax return preparers must have a PTIN to prepare tax returns and must include it on any tax return they prepare.
Considering the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.
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