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CPA Tax Preparer comments on Standard Deduction vs. Itemized Deductions | Schedule A of Form 1040

CPA Wilmington NC discusses Form 1040 tax preparation

Gary Bode, CPA: the IRS inadvertently made this issue more complex by expanding the Standard Deduction. If you wander out of your comfort zone during tax preparation, consider giving us a call for a free initial consult at 399-2705.

During Form 1040 tax preparation, you can choose to use the IRS Standard Deduction or your Itemized Deduction (as prepared on Schedule A). Which ever allows you the highest deduction. With lots of IRS conditions and exceptions of course. For example, some folks, like non-resident aliens, can’t use the Standard Deduction. But we’ve never found anyone who willingly wants to use their Itemized Deduction if it is less than the Standard Deduction!

Most CPA tax preparers complete Schedule A for Itemized Deductions, just to see if that exceeds your Standard Deduction. Why? Because Schedule A has multiple sections, each with its own rules.  It’s a little hard to eyeball sometimes, even for CPAs. And the IRS recently expanded the Standard Deduction, further complicating things. One rule of thumb, younger folks with mortgage interest expense, and, older folks with high medical expenses usually benefit from preparing Schedule A. Per the IRS: whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can cut your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing. Good news, your Itemized Deductions no longer phase out as your Adjusted Gross Income increases.

By trying to give more taxpayers breaks, the IRS made tax preparation more confusing.  If you wander out of your comfort zone during Schedule A preparation, give us a call for a gratis initial consult.  We’re a CPA firm in Wilmington NC but we have a virtual office for long distance Clients.  (910) 399-2705.

How Does a Deduction Work?

Briefly, a deduction reduces your gross income and eventually your taxable income. But the actual tax it saves is only a percentage of the deduction. While the tax rate is actually progressive, a simple example here assumes an aggregate constant rate of 30%. So a $1000 deduction saves $300 in taxes.

How much is the IRS Standard Deduction?

It depends on your filing status.  The IRS usually adjusts it for inflation.  For folks older than 65, it is higher.  Same with legally blind folks.  In some cases, you can file Schedule L to increase the Standard Deduction.  But generally, for, 2013:

  • Single     $6,100.
  • Married Filing Jointly   $12,200.
  • Head of Household   $8,950.
  • Married Filing Separately  $6,100.

Per the IRS: Married Filing Separately

When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize on Schedule A to claim their allowable deductions.

Again, we’re a CPA firm in Wilmington NC.  Although we serve a broader geographical base through our virtual office. We offer tax preparation services, including Form 1040, Schedule A and Schedule L.  Plus all the business tax returns like Form 1120 for C Corporations, Form 1120-S for S Corporations, Form 1065 for Partnerships.  Also Form 1041 for Estates and Trusts, Form 706 etc.  Plus Forms 941 and 940 for employment/unemployment taxes.  And all NC tax forms as well.  We offer a free initial consult.  Please see our posts to gauge our ability, proactive philosophy and level of customer service.  Give us a call at (910) 399-2705.

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