SoFi

With costs as low as $10, making a will doesn’t have to be expensive, but you may want to spend more to get exactly what you need.

Granted, the prospect of writing a will can feel boring, morbid, and as if it will be a big drain of time and money. While there’s no doubt that thinking about a world without you in it isn’t “fun,” the peace of mind that people can obtain from making a will, the right will, can be invaluable.

Whether you choose to go with an online template that will guide you through the how-to’s of creating a will or work with an attorney, it’s important to know your options. Let’s dive into that now and see how much making a will costs and which approach is best for you.

How Much Does It Cost to Make a Will?

The cost of a will varies from free to thousands of dollars, depending on whether you do it yourself or work with an attorney. Some people with a fairly straightforward situation (basic assets, one child) may find that an online template provides everything they need at a low cost. In general, however, people with high-net-worth or a complex personal situation, such as needing to provide for a disabled family member, may find it advantageous to work with an attorney.

You may wonder if you need a template at all. Can’t you just take pen to paper to share your wishes? In some states, the answer is yes: A handwritten will is legal. But there are good reasons to not write up a will on a piece of notebook paper. Not only can these take longer to go through probate — a legal process that vets the validity of a will — but a template may help make sure all bases are covered and legally valid.

There are templates online that are free, but some that are state-specific and go into greater depth (say, by guiding you through more questions about your situation) may cost from $40 up to over $100.

If you work with an attorney, you may pay $1,000 or more to create a will. But working with an attorney may be beneficial if you have a complex situation. For example, an attorney can help you create a trust, which can be one way to avoid probate and may provide tax advantages for your heirs. They may also have recommendations for the most tax-advantageous way to set up a will and can also answer any questions that may come up as you make the will.

Regardless of how you create a will, it’s also important to ensure that your will is legal in your state. This may mean having the will notarized or witnessed when you sign. It can also be a good idea to make several copies of the will, and let your executor know where the will can be found.

You also may need to update your will. You can do this via a codicil (this is akin to a PS to your will), but in many cases, it may make sense to create an entirely new will to avoid confusion. You may consider updating or redrafting your will whenever a major life event occurs, such as marriage, divorce, or the birth of a new child. If you’re working with a lawyer, ask them how they will handle potential changes and how much they will charge.


💡 Quick Tip: We all know it’s good to have a will in place, but who has the time? These days, you can create a complete and customized estate plan online in as little as 15 minutes.

The Cost to Have a Lawyer Write a Will

Having a lawyer write a will may be the most expensive option at $1,000 or more, depending on where you live and the complexity of the will. However, this path can have its benefits.

Creating an Estate Plan

Working with a lawyer can ensure you cover all bases and potentially create an estate plan. This can maximize tax-savings opportunities for your heirs. As part of this, a lawyer can be helpful in setting up a trust. A trust can be a tax-advantageous way to distribute assets upon your death and help avoid the possibly long and winding process of probate.

Negotiating a Large or Complicated Estate

You also may want a lawyer if you have a large or complicated estate, with a variety of assets, which could be investments, real estate, and the like. Also, if you have a complicated family situation, a lawyer can be very helpful in creating a will that addresses these situations. In this case, scenarios include divorce, remarriage, step-children, or complex (possibly contentious) relationships.

Developing End of Life Documents

When drawing up a will, a lawyer also can make sure that you have all end-of-life documents in place. While “will” can be used as a catchall term for end-of-life documents and directives, other important documents can include:

•   A medical power of attorney

•   A living will or advanced healthcare directive

•   Do-not-resuscitate orders

All of the above documents reflect what would happen if you were no longer able to advocate for yourself and needed someone to make medical decisions for you.

Before you work with a lawyer, make sure you’re clear on the fee structure: Will they charge by the hour? How much will it cost to update things in the future? Is there anything you can do on your own to help save money?

Recommended: What Happens If You Die Without a Will?

Cost Of Writing a Will Yourself

Online templates range from free to several hundred dollars, depending on the complexity and the range of documents provided. Online templates can help guide you through itemizing your assets and can be simple to update if necessary. Here are some details to note:

Online Templates Can Offer a Speed Advantage

Online templates may advertise that wills can be completed in 15 minutes or less. This can be true as long as you have relevant information at your fingertips. Prior to beginning a will (either online or with a pro), it can be helpful to itemize assets and discuss guardianship and executor plans with the people you hope to name prior to starting. This will make the process run more smoothly.

Online Templates May Need Witnessing

Once an online template is filled out, it will likely need to be signed and witnessed to be made legal. Keep this in mind: If you are thinking you can complete your will 100% online and don’t need to leave your home, you may be in for a surprise.

Some online services offer attorney services for an additional cost. This can be a hybrid option that allows you to have a lawyer answer any specific questions while doing the majority of the work yourself.

What’s the Difference Between a Trust and a Will?

You may see the terms trust and will used interchangeably. That’s wrong; a trust is not a will! A trust is a customized estate planning tool that can be helpful to heirs in addition to a will. If you hold assets such as real estate or have a positive net worth, a trust may make sense.

A trust can help your heirs:

•   Avoid probate, the legal (and sometimes lengthy) process in which property is distributed

•   Potentially limit tax implication of any gifts or inheritances

Trusts can be complex, but a fairly simple trust can be created through online templates. Having a trust can help ensure that your assets not only go to the people you intend them to go to, but that your heirs are provided for exactly in the way you intended. The time spent making the trust can pay off in peace of mind, both for you right now and for your heirs in the future.


💡 Quick Tip: It’s recommended that you update your will every 3-5 years, and after any major life event. With online estate planning, changes can be made in just a few minutes — no attorney required.

Does a Will Need to be Notarized?

You’ve taken the time, created a will, and printed it out. You’re done, right? Not so fast! A will usually does need to be signed and watched by a witness.

What’s more, while a will does not always need to be notarized to be valid, it may be in you and your beneficiaries’ best interests to do so. When a will is notarized, it is considered “self-proving,” which helps confirm that you had the mental capacity to create the will and were not under any duress. It proves the validity of the document and therefore can help avoid probate. Notarizing a will is typically a fairly minor expense of up to $15.

While it can be tempting to put off the notarization process (we know, it can be a hassle to find a notary nearby), getting it done immediately ensures that there are no loose ends if the worst were to happen unexpectedly. It can also be a good idea to make sure the will is printed out and put in a safe place, like a bank safe, and that your executor knows where to find it.

What Should You Never Put in a Will?

There are some things you want to sidestep when creating a will. Here are some considerations that can make the probate process more difficult.

•   Certain types of property, including property owned jointly, life insurance, or other accounts with a beneficiary already named.

•   Specific funeral or end of life wishes. The will may not be read until weeks or months after death.

•   “Rules” about who gets what. A will is not the place to put limitations on gifts, such as money only being available if someone were to marry or turn a certain age.

•   Providing money to pets. However, you can set up a trust to ensure that a pet is provided for.

•   Provisions for taking care of a dependent beneficiary. These kinds of long-term care needs can also best be set up in a trust.

In short, a will can’t cover all the what-ifs, but in many cases, a trust can do so. If you’re not sure how to appropriately manage your estate, consider consulting with a lawyer.

The Takeaway

Creating a will does not need to be expensive or time-consuming to be valid. While a trust may make sense for complex needs or if you have a positive net worth, having a will drawn up in the short term can cover your bases, ensure guardianship wishes are met if you have kids, and provide peace of mind now and in the future. Whether you spend $10 or over $1,000 creating one, if you have assets and/or dependents, now is a good time to act!

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 15% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

---

Photo credit: iStock/fizkes

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0224006

Read more

Having a copy of your car insurance declaration page is important because it offers an overview of your car insurance policy. Provided by your insurance company, your auto insurance declaration page can help you understand how you are (and aren’t) covered, among other crucial information — which is why it matters to know how you read yours.

In this article, we’ll walk you through how to read a car insurance declaration page and also explain how to get an insurance declaration page.

What Is an Insurance Declaration Page?

You can think of your automobile insurance declaration page as a summary of your overall policy, containing key information about your coverage, including which vehicles are covered and how to contact your car insurance agent. (You may hear this summary referred to as a “dec page” for short.)

The information detailed in your dec page is important for each insured driver to have on hand. If you’re involved in an accident or otherwise need to file a claim or contact your agent, this page can guide you through who to contact and what coverages you have. It can also help if you decide to compare policies to see if you’ve got the best deal for the premiums you’re paying.


💡 Quick Tip: Saving money on your fixed costs isn’t always easy. One exception is auto insurance. Shopping around for a better deal really can pay off.

Sample Car Insurance Declaration Page

Elements of your auto insurance declaration page will typically include the following:

•   Contact information

•   Loss payee (lender/lessor)

•   Policy number and coverage dates

•   Premium amounts

•   Insured drivers

•   Vehicle information

•   Coverages

•   Limits

•   Discounts

•   Deductibles

Here’s more about each.

Contact Information

This includes contact information for your insurance agent as well as your own name, address, and phone number.

Loss Payee

This will list any other party with an interest in the vehicle, typically the lender if you’ve financed or the lessor if you’ve leased the vehicle.

Policy Number and Coverage Dates

Just like with your mortgage, credit card account, car loan, and so forth, your auto insurance policy comes with a unique account number so that coverage specifics can be accessed when needed. The insurance policy will also have a beginning and end date, perhaps for a six-month period that can then be automatically renewed, and those dates will appear on the declaration page, allowing you to ensure that you have the current version on hand.

Premium Amounts

This page will also list your current premium amount so you know how much to pay (or how much will be automatically deducted from your account). If the declaration page is for a six-month term, it may show an amount of $660 — and, if the agent accepts quarterly payments, then that would be half of that amount: $660 for six months divided by two, which amounts to $330 for three months. If payments are broken down monthly, that would be $660 divided by six, which comes out to a monthly payment of $110.

Insured Drivers

If only one person is on the policy, then this section is pretty simple: their name will be listed as the insured driver. If multiple people are covered on the policy, then all of the household drivers would be listed by name. A person must be added to and listed on the policy before they can be covered by the insurance; if they’re removed from the policy, an updated auto insurance declaration page should be issued without their name.

Vehicle Information

If only one vehicle is insured under this policy then, again, this section is pretty straightforward. It will include the year, make, model and vehicle identification number (VIN) for the covered vehicle. If multiple household vehicles are covered, information will be listed about each one.

Recommended: How Does Car Insurance Work?

Coverages

The automobile insurance declaration page will list the types of coverage included on the auto policy as well as the dollar amounts associated with them. Categories can include:

•   Bodily injury: This covers costs if you cause injuries to other people through an auto accident.

•   Property damage: This covers damage to another person’s car or property (such as a fence or building) if you’re at fault in an auto accident. It can also cover costs for the removal of trees, signs, and other debris as needed after an accident.

•   Medical coverage: This covers medical payments and lost wages if you or a passenger gets injured in the accident. It can also cover funeral costs.

•   Uninsured/underinsured motorist bodily injury: If the other person in the accident isn’t insured or doesn’t have enough insurance to cover the damages incurred, this will kick in to help pay for repairs and other costs.

Limits

For each type of coverage listed, there will be limits — sometimes per person and other times per incident. In all states except Florida, liability insurance is required, although laws vary regarding the amounts needed. Some states will require bodily injury and property damage liability, while others may also require uninsured motorist coverage or personal injury protection.

Note that these state requirements list the minimum required, not necessarily how much auto insurance you may really need in case of an accident. If you have a loan on the car, your lender may require comprehensive and collision coverage, even though your state laws don’t require them.

Recommended: 5 Steps to Switching Your Car Insurance

Discounts

You may receive discounts on your policy, perhaps because of vehicle features (anti-lock brakes or stability control, for example) or because of your driving history. These should be listed on your declaration page along with the vehicles they apply to. Your insurance agent may provide multiple car discounts and/or discounts if you also have a homeowners policy with them, as two more examples.

Deductibles

Deductible specifics should be listed on the auto insurance declaration page as well. The deductible (an important auto insurance term to know) is the amount you’re required to pay out of pocket before your insurance policy kicks in to pay the rest, subject to policy limits.

Coverage types, such as collision, personal injury, and uninsured motorist, can each have their own deductibles — perhaps $500 or $1,000 each. In general, a low deductible policy comes with higher premiums, while a high deductible generally has lower premiums.


💡 Quick Tip: If your car is paid off and worth only a few thousand dollars, consider updating your car insurance: You might choose to opt out of collision coverage and double down on liability.

How to Get Your Insurance Declaration Page

When you buy a new car insurance policy or change a current one, you should receive a copy of your new or updated automobile declaration insurance page. If you can’t find your copy, you can often download one from your insurance agent’s website or through their mobile app.

If the website doesn’t have that feature or you don’t want to go that route, there are other options for how to get an insurance declaration page. In that case, you could contact your agent for another copy, which could be a hard copy or a digital one.

The Takeaway

The auto insurance declaration page serves as a summary of your policy, including coverages, premiums, covered vehicles, deductibles, and more. Knowing how to read yours will allow you to know how much you’re protected in case of an accident and how to contact your insurer. It makes sense to have a current copy of your declaration insurance page in your records where it’s easily accessible. Additionally, your auto insurance declaration can be helpful if you want to shop around for auto insurance rates.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

---

Photo credit: iStock/Drazen_

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0224005

Read more

Supplemental life insurance is typically an additional policy that you can purchase to augment the group life insurance policy obtained via your employer.

These policies can provide extra peace of mind when it comes to protecting your loved ones, but is more insurance always better? You may wonder whether purchasing this kind of policy is a good idea or not worth the added expense. Let’s take a closer look to see whether supplemental life insurance makes sense for your situation.

Understanding Supplemental Life Insurance

Supplemental life insurance is a policy taken out in addition to basic coverage, which might be term or permanent life insurance. You can often purchase a supplemental policy through an employer to augment what they offer as an employee benefit. However, these policies don’t have to be secured through your job. We’ll learn more about that in a minute.

Some of these policies come with a death benefit, a lump sum payment that goes to the beneficiaries you’ve named (the loved ones who will inherit the money). Others may be a different kind of policy; say, one that pays funds that are earmarked to pay for funeral expenses. Depending on the details of your life, these add-ons may be an inexpensive way to boost your protection and sense of security.


💡 Quick Tip: With life insurance, one size does not fit all. Policies can and should be tailored to fit your specific needs.

Do You Need Supplemental Life Insurance?

Deciding whether or not to buy a supplemental policy is a very personal decision. To help figure out the right answer for your situation, it may help to ask yourself and answer a few questions. Let’s consider some of those here.

Does Your Employer Provide Life Insurance?

Because supplemental insurance is meant to enhance the life insurance policies you already have, check to see if your employer offers basic life insurance as a benefit. If so, how much? Many times, employers offering this insurance will provide a multiple of the employee’s current salary. Other times, it’s significantly less — $10,000 to $25,000 worth of coverage is common. Those are figures that many people will find too low to provide the kind of protection they’d like.

If you feel you don’t have enough protection, you may want to look for ways to boost your coverage so that in a worst-case scenario, you know your loved ones will have enough money to cover their expenses. Perhaps your employer offers supplemental policies that will get you to the level of life insurance coverage that you desire. Otherwise, you can also look on the open market for primary or supplemental policies.

Have Your Compared Life Insurance Rates?

If you haven’t compared prices of life insurance rates in a while (or ever), you might want to give it a try. Just because an employer offers life insurance, including supplemental coverage, you may not want to buy it. You may discover that you can get enough life insurance through a standard policy without adding a supplemental one.

You can quickly get quotes by calling an insurance agent or, to save even more time, from a website that provides them from multiple companies. When looking at the quote that gives you the best coverage for the most affordable premiums, would you still need a supplemental policy? The answer may be no. There’s a good deal of competition in the marketplace and great deals to be found.

Recommended: How to Buy Life Insurance in 9 Steps

How Is Your Health?

First, let’s understand that your health rating is a key factor in buying life insurance on the open market. Rates tend to be lower when you are healthier and younger. Health is typically assessed by the insurer asking you questions about your medical status and possibly having you submit to a brief health exam that involves the collection of blood and urine samples.

While plenty of life insurance policies require health exams and/or medical records, many insurers also offer lab-free options that don’t require medical exams (although you’ll almost certainly need to answer health-related questions). These are often the kind employers offer employees. Typically, these policies are for people who fit into certain age groups and other categories in which they’re likely to be healthy. These lab-free policies are often available for up to $1 million.

Now that you know how this works, understand the implications of your health status. If you have an underlying health condition, are a smoker, or have other qualifying factors, you would probably pay more for life insurance if you went shopping on the open market. In these cases, buying a supplemental policy through your job could be a good way to get coverage at a relatively low cost.

Do You Need Portable Coverage?

Before you sign up for a supplemental policy, consider whether it’s portable. “Portability” is your ability to keep certain benefits if you switch your place of employment or leave the workforce entirely — in this case, your life insurance. If you’re thinking about changing jobs or have reason to believe that you may not work at your current employer for much longer, it’s important to know if your life insurance is portable.

How Much Supplemental Life Insurance Should You Buy?

A common recommendation is to carry 10 to 15 times your annual income in life insurance coverage. Your goal is to choose a policy that would replace the income you would have brought in if you weren’t around to provide for your family. So, if you multiply your salary by those numbers and then subtract what you have in your “regular” life insurance policy, that can be a starting point to determine how much supplemental insurance makes sense.

If you make $50,000 a year and multiply by 10 or 12, that’s $500,000 to $600,000 in coverage you want to purchase. (You might want to bump it up a bit to account for inflation.) So, if you have a term life insurance policy for $500,000, you might decide to get a supplemental policy for $200,000.

Now, factor in your outstanding debt. Life insurance payouts can be used to pay them off, including mortgage loans, car loans, student loans, credit cards, and so forth. So, if you have these debts, you can add their outstanding balances up and consider adding those amounts to your life insurance needs. If, for example, these debts total $300,000, you might bump up the supplement policy example above to $500,000.

Recommended: Life Insurance Definitions

Types of Supplemental Life Insurance

We’ve been focusing on one kind of supplemental insurance, a popular option that lets you increase the overall life insurance coverage you own. This kind of policy would pay a lump-sum death benefit to your beneficiaries. If you purchase this, it’s an employee benefit that can increase the amount of coverage that you own (although you may be responsible for part of all of those premiums albeit at a group rate).

But let’s consider some other possibilities that may be offered:

•   Supplemental spouse life insurance. This kind of insurance provides a death benefit if the employee’s spouse dies and may also be called supplemental family life insurance. Employees may also have the option to buy supplemental child life insurance to cover the death of a child or other dependent who qualifies.

•   Accidental death and dismemberment. This provides coverage to your beneficiaries if you are killed or lose physical function in a type of accident that’s covered in the policy. Depending on the kind of work you do or the pastimes you pursue, this may or may not suit your needs. With AD&D insurance, you could receive a benefit, say, if you were to lose your eyesight, your hearing, or limb in an accident. But it won’t provide any benefit if you die due to other medical conditions, which are more likely to occur.

•   Final expenses. These policies pay a small benefit (typically between $5,000 and $35,000) to cover end-of-life expenses, such as funeral and burial costs. Some people like to have this kind of coverage, which means your loved ones wouldn’t have to pay out of pocket for these charges.

How Much Coverage Can You Get Through Work?

It’s worthwhile to evaluate what life insurance options are available through your work. Employers may offer lower rates since they get a group insurance rate. Also, it’s also possible that your employer would pay part of your premiums. It’s typically easier to get insured through a group plan. While you may need to answer medical questions, it’s less likely that you’ll need a medical exam for group insurance.

Group plans through your employer, though, are usually not portable. This means that if you leave that employer, the coverage ends and then you’ll need to shop around again — now at an older (although not necessarily old) age and perhaps with new health conditions. Plus, these plans aren’t as customizable as you might get on your own.

How Much Does Supplemental Life Insurance Cost?

If your employer offers this benefit as part of a group policy, the cost may be minimal, especially if the workplace subsidizes the premiums.

Otherwise, it can make sense to get personalized quotes, given that age, gender, health conditions, amount of the policy, term, and more can impact the price. There are online calculators that can help you do the math and see how the numbers add up.


💡 Quick Tip: Term life insurance coverage can range from $100K to $8 million. As your life changes, you can increase or decrease your coverage.

The Takeaway

To recap: What is supplemental life insurance? It’s a policy that enhances a person’s primary life insurance policy. It helps to ensure that they have enough financial benefit to protect their loved ones if they weren’t there to provide for them.

While supplemental policies through your employer can be affordable, they may not deliver the level of coverage you need. Take a close look at your options, and take advantage of the simple online tools that can help you find the kind of policy you need at the right price.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Explore your life insurance options with SoFi Protect.

---

Photo credit: iStock/Kemal Yildirim

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0224003

Read more

Tax deductions enable taxpayers to reduce their total taxable income. That can be a very good thing: It can result in a lower tax bill or, if you had too much withheld through the year, a larger refund.

While most people now take the standard deduction — especially since the Tax Cuts and Jobs Act of 2017 effectively doubled the standard deduction amount — some taxpayers may benefit from itemizing their deductions.

Doing so can be a somewhat complicated and time-consuming process, but it may save you money. Here’s your guide to itemizing deductions; read on to learn:

•  What is an itemized deduction?

•  How do itemized deductions differ from standard deductions?

•  What are examples of itemized deductions?

•  What are the pros and cons of itemizing deductions?

What Is an Itemized Deduction?

Itemized deductions are a strategy to lower your adjusted gross income for a tax year. Rather than taking a set standard deduction whose amount is determined by the Internal Revenue Service (IRS), some taxpayers choose to calculate all deductions for which they’re eligible. They can then decrease their taxable income by that amount.

It’s worthwhile for some taxpayers to do the math and see how much they can reduce their tax bill by itemizing. That said, many may realize they can actually reduce their taxable income more by taking the standard deduction. Why? The standard deduction is much larger than it used to be since the passing of the Tax Cuts and Jobs Act at the end of 2017.

For the 2023 tax year (filing in 2024), the standard deduction is:

•  $13,850 for single tax filers

•  $20,800 for heads of household

•  $27,700 for married couples filing jointly

Almost everyone can take the standard deduction — and there’s a lot less math and paperwork involved. But for a unique set of taxpayers, itemized deductions could yield an even larger tax liability reduction than what the IRS offers through the standard deduction.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.60% APY, with no minimum balance required.

Itemized vs. Standard Deduction: What’s the Difference?

So what are the differences between itemized deductions and the standard deduction? Let’s take a look.

•  Dollar amount: The standard deduction is a set amount. If you choose the standard deduction, you cannot reduce your tax liability further by tacking on itemized deductions. When itemizing, the amount by which you reduce your tax burden varies depending on your unique tax situation. In nearly every case, it only makes sense to itemize if the resulting deduction is larger than the standard deduction or if you aren’t eligible to take the standard deduction.

•  Process: Claiming the standard deduction is straightforward. You don’t need to produce receipts and sort through expenses. If you itemize, you’ll need to educate yourself about all the deductions for which you qualify, produce the proof that you qualify in case of a tax audit, and fill out what is known as Schedule A on your tax return.

•  Eligibility: Anyone can itemize their deductions, but the standard deduction has a few exceptions. For example, if you’re married but filing separately and your spouse itemizes, you must itemize as well. While almost everyone is eligible to take the standard deduction, it never hurts to check with the IRS or your accountant to ensure eligibility.

Recommended: How to Pay Less Taxes: 9 Simple Steps

How Do Itemized Deductions Work?

Now that you know what itemized deductions vs. standard ones are, consider a more specific example of how they work.

Itemized deductions reduce your overall tax liability, just like the standard deduction. The catch? You can only take the itemized deductions for which you’re eligible. If you can cobble together enough itemized deductions to equal a larger tax-liability reduction than the standard amount, it could be worth itemizing.

As an example, let’s assume your gross income was $100,000.

•  The standard deduction for this income is $13,850 for single filers, so your taxable income would be $86,150.

•  Let’s suppose your itemized deductions are worth $20,000. It will lower your taxable income to $80,000.

Because your itemized deductions are greater than the standard deduction, it makes sense to itemize. Doing so will lower your taxable income and can thereby reduce the taxes you pay.

While it may take longer to calculate your deductions and prepare your tax return, it may make good financial sense to keep that extra cash in your pocket (or savings account, as the case may be).

Types of Itemized Deductions

The IRS offers an extensive list of potential itemized tax deductions, but you’ll probably only qualify for a handful. Here are a few of the most common:

•  Property tax deduction

•  Mortgage interest deduction

•  Charitable contribution deduction

•  Deduction of state and local sales taxes

•  Deduction of certain medical and dental expenses

While the IRS used to have a long list of miscellaneous deductions — from moving expenses to unreimbursed job expenses to tax preparation fees — many of these disappeared with the Tax Cuts and Jobs Act.

Independent contractors may want to consider itemizing; check out the tax deductions for freelancers to see which ones you may qualify for. As you itemize your business expenses, pay attention to the home office tax deduction, as well as how much you spend on office supplies, travel, and other business-related expenses. Make sure to keep good documentation of what you’ve paid.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

How to Claim an Itemized Deduction

To claim itemized tax deductions on your return, you’ll need to fill out IRS Schedule A with your Form 1040. Here’s what that process looks like:

1.   Research itemized deductions. It’s helpful to know which deductions you qualify for — and to gather up necessary documentation to enter in all the information beforehand. Preparing for tax season can make the process go much more smoothly!

2.   Fill out Schedule A. You’ll enter in all your expenses and add them up to get your total deduction.

3.   Compare it to the standard deduction. Before copying that total over to your Form 1040, it’s wise to reference the standard deduction for your filing status this year. Once you’re sure that the itemized deduction can yield larger savings, you can write down the number on Form 1040 and continue filing your taxes.

While the process sounds straightforward, it can be difficult to find out which deductions you’re eligible for and how to tabulate all your expenses. If you’re unsure, it may be a good idea to work with an accountant or at least professional tax preparation software.

Recommended: How to File Taxes for the First Time

Pros and Cons of Itemized Deductions

So what are the benefits and drawbacks of itemizing your deductions? Let’s take a look.

Pro: Itemizing could help lower your taxable income and save you more money than the standard deduction.
Con: Given changes to tax law a few years back, there’s a good chance you may save more with the standard deduction.
Pro: Because you’re writing off certain expenses and know which expenses are deductible, you may be more prudent with your spending habits throughout the year.
Con: Itemizing can involve a lot more paperwork and effort. It can be confusing, and you must make sure you’re only itemizing deductions for which you actually qualify to avoid trouble with the IRS.

The Takeaway

Most people will likely save more money on their taxes with the standard deduction, but depending on your scenario, you could see a greater reduction in your tax liability by itemizing. If you have the time, it may be worth it to go through the process of itemizing, just to see if you could save money. If you can, great! And if not, the standard deduction also offers great savings.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can anyone itemize a deduction?

All taxpayers are permitted to itemize deductions, but the Tax Cuts and Jobs Act has made it less attractive to itemize for many Americans. Why? The standard deduction essentially doubled in size, while fewer expenses became eligible for itemizing.

Still, it may be worth calculating your itemized deductions to see if you can save more than you would with the standard deduction.

What are some things that you cannot itemize?

Since the Tax Cuts and Jobs Act, there are fewer things that you can itemize on your tax return. Even some popular deductions that people used to take are no longer eligible, including moving expenses, tax preparation fees, and unreimbursed business expenses.

Many deductions have a lot of fine print — both for inclusion and exclusion — so it’s a good idea to work with an accountant or professional tax preparation software to determine what counts as an itemized deduction.

Do you need proof for itemized deductions?

Generally, you should have proof for expenses that you are claiming as an itemized deduction. Such documentation would prove that you paid the expenses and that they were eligible for the deduction. The IRS calls this the burden of proof.

---

Photo credit: iStock/Milan_Jovic
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


SOBK0324002

Read more