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The Standard Deduction vs. Itemizing Your Tax Return | Which Is Best? - YouTube
Channel: The College Investor
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- Both the standard deduction
and the itemized deduction
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reduces the amount of tax
that you pay in a given year,
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but which one is better?
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I'm going to be answering
that question in this video.
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(ethereal music)
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Hey guys, welcome back
to The College Investor,
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the place for investing
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and personal finance for millennials.
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Today we are partnering with
Credit Karma in this video
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and we're going to be talking about
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which situation makes sense for you
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to take the standard deduction
or the itemized deduction
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and the difference between the two.
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Be sure to check out our complete review
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of Credit Karma's new tax software.
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And first, let's go ahead and jump into
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what is the standard deduction.
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A standard deduction
reduces the amount of tax
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that you owe in a given tax year.
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The standard deduction
for the 2019 tax year
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was $12,200 for singles,
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$18,350 for head of household,
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$12,200 for married filing separately,
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and $24,400 for married filing jointly.
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For example, a single
person who earned $50,000
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in 2019 has a $12,200 standard deduction.
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So they actually only
pay taxes on $37,800,
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so that's the 50K minus $12,200.
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So that reduces the amount
of taxes that they pay into
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because they took that standard deduction.
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And remember, you always wanna
reduce the amount of income
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that is taxed upon because the
smaller the amount of income,
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the smaller amount of taxes
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that you're actually having to pay into.
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No matter how much or little
you earn in a given year,
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you can take the standard deduction.
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Now, the standard deduction
is standard for a reason.
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Most people won't be able
to find enough expenses
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that covers more than that
$12,200 standard deduction.
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Now, the few people who can itemize
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instead of taking the standard deduction
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are typically people who have
high charitable contributions
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or live in counties that have
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high property and income taxes.
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So what does it mean to itemize taxes?
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When you itemize taxes,
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you are taking valid personal
expenses, adding those up,
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and if those expenses exceed
your standard deduction,
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then that's when it would make
sense to itemize your taxes.
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So when you claim a larger deduction,
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you're going to pay less in taxes.
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And if you end up having
more in itemized deductions,
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then that's obviously
when it would make sense.
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So there are a couple of different ways
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that you can itemize your expenses
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including charitable contributions,
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mortgage interest up to
$750,000 of your mortgage,
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state and local income taxes
or sales tax, property taxes,
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and medical expenses worth
more than 10% of your income.
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Now, if you don't know if
you have more itemizations
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than your standard deduction,
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that's where your tax software
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is going to walk you through both options.
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You're going to input
all of your information
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and then it's going to tell you
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here's your standard deduction option
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and how much taxes you
could potentially owe
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and here's your itemized deduction
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and here's how much in taxes
you could potentially owe.
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So Credit Karma does exactly that.
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They walk you through each option
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and then you get to make that choice
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based upon your own tax filing situation.
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Now, there are other ways you
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can reduce the amount
of taxes that you owe
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and that includes contributions
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to a workplace retirement plan,
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like a 401(k) or a traditional IRA,
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business expenses through a Schedule C,
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contributions to a Health Savings Account,
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educator expenses, student loan
interest, and paid alimony.
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It can be hard to try to
determine this on your own
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whether or not you should
take the itemized deduction
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or the standard deduction.
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In general, most people are going
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to take the standard deduction,
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but your tax software is
really going to help you out
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in making that decision so
that you can be crystal clear
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that you were paying in
the least amount of taxes.
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Credit Karma Tax software
is an awesome software
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because it's 100% free
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and we've really found this tax software
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to be very robust, easy to understand.
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The dashboard is very easy to use,
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and did I mentioned it's free?
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You can be sure to check
out our complete review
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of the Credit Karma Tax software
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by visiting us at thecollegeinvestor.com.
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