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Thursday, March 24, 2016

Should I Itemize?

There are two ways you can take deductions: you can itemize deductions or use the standard deduction. Deductions reduce the amount of your taxable income.

The Federal standard deduction amount varies depending on your income, age and filing status, and changes each year; see Topic 551 for more information.

Table 20-1.Standard Deduction Chart for Most People*
If your filing status is...
Your standard deduction is:
Single or Married filing separately
$ 6,300
Married filing jointly or Qualifying widow(er) with dependent child
Head of household
*Don't use this chart if you were born before January 2, 1951, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Use Table 20-2 or 20-3 instead.

You should considering itemizing if your allowable itemized deductions are greater than your standard deduction or if you must itemize deductions because you cannot use the standard deduction.    Be aware that some people do not qualify to use the itemized deduction and must use the standard deduction.

It is also important to remember that the standard deduction for the State of Montana is typically lower than the Federal standard deduction.  So it might be beneficial to itemize your Montana return, even if your deductions aren’t enough to itemize on your federal return. 

List of Common Itemized Deductions
  • Medical, dental, prescription drugs, and other health care costs long term care,
  • State and local income taxes or state and local sales taxes,
  • Real estate (property) taxes,
  • Personal property taxes (such as motor vehicle registration fees),
  • Interest paid on a home mortgage,
  • Interest paid on investments (such as margin interest),
  • Cash contributions to charities and churches,
  • The fair market value of non-cash contributions to charities and churches,
  • Personal losses because of theft or casualty,
  • Job-related expenses that your employer did not reimburse you for,
  • Union dues,
  • Cost of purchasing or cleaning uniforms,
  • Job-related education and professional development,
  • Job-related travel,
  • Home office expenses,
  • Tax preparation fees,
  • Investment fees and expenses (such as IRA custodial fees and annual brokerage fees)
  • Safe deposit box fees,
  • Gambling losses (only to the extent of gambling winnings).