Standard Deduction vs. Itemized Deduction: Which Should I Choose?

Trying to lower your tax bill but not sure which deduction to take? You’re not alone. The choice between the standard deduction and itemized deductions can be tricky, but it can also make a big difference in your taxes.

Imagine saving hundreds, or even thousands, just by picking the right option. Whether you’re looking for a hassle-free way to file or hoping to maximize your savings, understanding these two deductions is key. Let’s break it down simply and clearly so you can choose the best option for your financial situation.

In this guide, we’ll explain how standard deduction and itemized deductions work, compare their benefits, and help you decide which one is right for you. 

About 87% of taxpayers claim the standard deduction—should you do the same? Read on to find out how you can keep more money in your pocket this tax season.

What is a Tax Deduction?

A tax deduction reduces your taxable income, which in turn lowers the amount of tax you need to pay. You have two main choices: taking the standard deduction or itemizing your deductions. The goal is to select the option that maximizes your tax savings.

Types of Tax Deductions

1. Standard Deduction: This is a fixed amount that you can deduct from your income. It’s a straightforward way to reduce your taxable income without needing to itemize expenses.
2. Itemized Deductions: This involves listing specific expenses that you can deduct from your taxable income. Common itemized deductions include:
   • Mortgage interest
   • Charitable donations
   • Unreimbursed medical expenses
   • State and local taxes

What is Standard Deduction?

The standard deduction is a predetermined amount that reduces your taxable income, simplifying the tax filing process since there’s no need to track itemized expenses. 

The IRS modifies this amount every year based on your filing status, which includes married, single, and so forth. For example, to answer the question, “What is the standard deduction for a married couple?” the IRS sets a specific deduction amount for married couples filing jointly, which is updated each year to account for inflation.

For the 2024 tax year (returns due April 2025), the standard deduction amounts are:

• Single taxpayers and married individuals filing separately: $14,600
• Heads of household: $21,900
• Married filing jointly standard deduction and qualifying surviving spouses: $29,200

How to Claim the Standard Deduction?

1. Determine Your Filing Status: Choose the amount of the standard deduction that matches your filing status. The standard deduction varies for single filers, married couples filing jointly, heads of household, and married individuals filing separately.
2. Enter the Amount on Your Tax Return: On your Form 1040, U.S. Individual Income Tax Return, enter the standard deduction amount on Line 12.
3. Special Rule for Dependents: If someone else can claim you as a dependent, your standard deduction may be reduced. In this case, you can claim the higher of these two amounts:
   • $1,250, or
   • Your earned income plus $400, up to the standard deduction amount for your filing status.

That’s it! By understanding what’s the standard deduction and following these simple steps, you can easily claim the standard deduction on your tax return.

Impact of the Tax Cuts and Jobs Act (TCJA) on Standard Deduction

The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the standard deduction:

• Higher Standard Deduction: The TCJA nearly doubled the standard deduction amount, making it more advantageous for many taxpayers to use the standard deduction instead of itemizing their deductions.
• Widespread Use: As a result of this change, about 87% of taxpayers now take the standard deduction, according to the IRS.
• Duration of Changes: These changes, including the increased standard deduction, are in effect until the end of 2025.

The TCJA has simplified the tax filing process for many, allowing more taxpayers to benefit from the higher standard deduction. If you want to take advantage of these benefits, get in touch with Peter Salinger for professional assistance.

What is Itemized Deductions?

Itemized deductions allow you to reduce your taxable income by claiming specific expenses. Unlike the standard deduction, itemizing requires you to list and document your expenses, which can be more time-consuming but potentially more advantageous if your expenses surpass the standard deduction.

When to Itemize? 

If your allowable expenses exceed the standard deduction amount for your filing status, itemizing can significantly lower your taxable income and reduce your tax bill.

It’s important to note that if you and your spouse file separate returns and one of you itemizes deductions, the other spouse must also itemize deductions. Married filing separately itemized deductions can be claimed on a separate return for certain expenses paid separately or jointly with your spouse. Expenses you pay with your own money can only be deducted by you.

How to Claim Itemized Deductions?

1. Complete Schedule A: Use Schedule A, Itemized Deductions, of Form 1040 to list all the categories of expenses you can deduct.
2. Transfer the Total: Write the total amount from Schedule A on Line 12 of Form 1040, where the standard deduction would normally be entered.

Now that we have a clear picture of what does itemize mean, let’s get to the types of it in detail. 

Types of Itemized Deductions

Itemized deductions are specific expenses you can deduct from your adjusted gross income (AGI) to reduce your taxable income. Understanding what qualifies as an itemized deduction is essential for accurate tax filing. Here are the main types of itemized deductions:

• Unreimbursed Medical and Dental Expenses: You can deduct medical and dental expenses that exceed 7.5% of your AGI. This includes out-of-pocket expenses for yourself, your spouse, and your dependents.
• Long-term Care Premiums: These premiums are deductible to the extent that they exceed 10% of your AGI. The deduction limit varies based on age, and the insurance must be “qualified.”
• Home Mortgage Interest: You can deduct interest on mortgage loans up to $750,000. If your mortgage originated before December 16, 2017, the limit is $1 million. Form 1098 from your lender will detail the deductible interest.
• Taxes Paid: You can deduct up to $10,000 in combined state and local taxes, including real estate taxes. Personal property taxes are also deductible. Note that any state tax refund received must be reported as income if you itemize deductions from the previous year.
• Charitable Donations: Donations to qualified charities are deductible up to 60% of your AGI. If your donations exceed this limit, you can carry the excess over to the next year.
• Casualty and Theft Losses: Losses from federally declared disasters are deductible if they exceed 10% of your AGI, after subtracting $100 from the loss amount. You must complete Form 4864 and report the loss on Schedule A.
• Miscellaneous Deductions: This category includes gambling losses (up to the amount of gambling winnings), losses from partnerships or S corporations, estate taxes on income in respect of a decedent (IRD), and certain other expenses.

By understanding what taxes can be itemized and effectively using these itemized deductions, you can potentially reduce your taxable income and lower your tax bill. If you need help with itemized deductions, Peter Salinger can assist you. 

Moreover, in case you need assistance, he also offers tax preparation services and tax planning services to further meet your financial requirements.

Differences Between Itemized and Standard Deductions

Understanding the differences between itemized and standard deductions can help you decide which option maximizes your tax savings.

Aspect	Standard Deduction	Itemized Deductions
Eligibility	Available to all taxpayers unless they choose to itemize or are ineligible (e.g., married filing separately if the spouse itemizes).	Only beneficial if total deductible expenses exceed the standard deduction amount. It requires choosing this option on the tax return.
Common Deductions	Single, married filing jointly, married filing separately, and head of household, with additional amounts for age or blindness.	Medical expenses, state and local taxes, mortgage interest, charitable contributions, casualty and theft losses, and other miscellaneous deductions.
Limits and Caps	No limits within the standard deduction; it is a flat amount based on filing status.	Certain deductions have specific limits, such as the cap on state and local taxes ($10,000) and the requirement that medical expenses exceed 7.5% of AGI (Adjusted Gross Income) to be deductible.
Impact on Tax Filing	Simplifies tax filing, reducing the need for extensive paperwork and calculations.	Can lead to greater tax savings if you have significant deductible expenses, but it also increases the complexity and time needed to prepare your tax return.
IRS Adjustment	Adjusted annually for inflation by the IRS.	Specific rules and limitations for each type of deductible expense are subject to change and must be checked each year.
Decision Factor	Best for taxpayers with few deductible expenses. Provides a quick and straightforward way to reduce taxable income.	Ideal for taxpayers with high deductible expenses that exceed the standard deduction amount. Requires detailed documentation and may provide more significant tax benefits.

In Conclusion: Finding the Right Deduction for Your Tax Situation!

Deciding whether to take the standard deduction or itemize your deductions can greatly impact your tax return. To start, calculate your total itemized deductions, including expenses such as medical bills, state and local taxes, mortgage interest, charitable contributions, and casualty losses. Use IRS Form 1040 – Schedule A to compile and sum these expenses.

Next, consider whether any deductions might be allowable on your state tax return, even if they aren’t on your federal return. This can help ensure you’re maximizing your deductions at both levels.

Once you have your itemized total, compare it to the standard deduction for your filing status. If your itemized deductions exceed the standard deduction, you should itemize to lower your taxable income. If not, taking the standard deduction is simpler and still reduces your taxable income effectively.

If you’re uncertain about whats a standard deduction or whats an itemized deduction and which option is best for you, consider consulting Peter Salinger. He can help you deal with the complex tax rules and ensure you’re maximizing your deductions and credits. This informed approach helps optimize your tax savings.

Additionally, Peter Salinger has extensive expertise as an offer in compromise attorney and a wage garnishment attorney, providing specialized legal support for complex tax issues. Get in touch now!