Understanding itemizing versus standard deductions is very important because it determines whether individual deductible expenses will actually affect your total taxes.
For example, if you itemize, then another charitable expense will increase your deductions, and lower your taxes. On the other hand, if you are unable to itemize, then additional charitable expenses will have no effect on your taxes.
US taxpayers must choose between what is called the “standard deduction” and “itemized deductions.” To do this, first add up all of your itemized deductions, using Schedule A. This will include items like:
- medical and dental expenses
- state and local income and property taxes
- mortgage interest and points
- employee work expenses
- charitable donations.
As always, there are thousands of pages of fine print here. I’m giving you the basic rules. Before you actually try this with your own real money, either speak to your accountant or study the rules.