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By Sam Andrews
Animator / Designer / Dancer
3/05/2022

Standard Deduction vs Itemized Deduction: How To Decide

Itemizing deductions requires more paperwork, filling out Form 1040 Schedule A, and keeping records of those expenditures in case you get audited. Itemizing may allow you to shield more income from taxes and lower your overall tax bill, depending on your situation. These deductions almost doubled starting in 2018 after the passage https://kelleysbookkeeping.com/ of theTCJA. Excess amounts must be carried over to the next year. Other contributions can be limited to 50%, 30%, or 20% of your AGI, depending on the type of property and organization receiving your donation. Itemizing most often makes sense for higher-income earners who also have a number of large expenses to deduct.

With the standard deduction, you don’t get to choose the amount deducted, but you also don’t have to mess with all the receipts and calculations that itemized deductions require. Choosing to itemize your deductions instead is like shifting into manual drive. It’s going to take some extra effort on your part, but if you’ve had some big out-of-pocket medical expenses and charitable donations this year , it could be worth it to itemize. We’ll take a look at those expenses that qualify for itemizing in just a bit. That might sound like a lot of work, but it can pay off if your total itemized deductions are higher than the standard deduction. • Claiming the standard deduction is easier, because you don’t have to keep track of expenses.

Testimony: The Costs and Complexity of the Federal Tax Code Demand Reform

Every year it’s up to you to decide whether you should itemize or take the standard deduction. However, as a result of the Tax Cuts and Jobs Act , the tax reform law that took effect in 2018, far fewer Americans will need to itemize than in the past. In December 2017, president Trump signed into law a tax reform bill called the Tax Standard Deduction Vs Itemized Deductions Cuts and Jobs Act of 2017. This bill made had several provisions that affect your choice on whether to itemize or take the standard deduction. Where you once could take advantage of a casualty and theft itemized deduction, now theft and casualty losses are limited to those that occur within a federally declared disaster area.

This deduction is perhaps the most difficult—and financially painful for which one can qualify. Taxpayers who incur qualified out-of-pocket medical and/or dental expenses that are not covered by insurance can deduct expenses that exceed 7.5% of their adjusted gross income . This was originally scheduled to rise to 10% starting with the 2019 tax year . Between the 2018 and 2025 tax years, a change in the tax law nearly doubling the standard deduction has made itemizing tax deductions less advantageous for many taxpayers.

Standard Deduction vs. Itemized Deductions: Which Is Better?

Tax deductions out there instead of taking the flat-dollar standard deduction. If you owned a home and your mortgage interest, points, and mortgage insurance premiums exceed your standard deduction, there’s a good chance you would benefit from itemizing, Intuit TurboTax said. If you have a $300,000 mortgage at 4% interest, that’s already $12,000 of interest you can deduct. If you had to repay more than $3,000 that you included in your taxable income in a previous year, you may be able to deduct the amount you repaid. You can deduct out-of-pocket medical, dental and vision expenses. This can include insurance premiums, doctor co-pays, lab fees and the cost of prescription medications, eyeglasses and contact lenses, hospital stays, surgeries and ambulance services.

• However, the TCJA was a complete game-changer as Congress almost doubled the standard deduction.
• By clicking “Find a Lawyer”, you agree to the Martindale-Nolo Texting Terms.
• Your expert will only sign and file your return if they believe it’s 100% correct and you are getting your best outcome possible.
• Because the Trump tax law more than doubled the standard deduction for the 2023 tax year compared to 2017, some people who itemized their 2017 taxes will not benefit from itemizing their 2022 and 2023 taxes.
• There may be some situations where you can’t claim the standard deduction, such as if you’re married filing separately and your spouse itemizes their deductions.
• The difference between the standard deduction and itemized deduction comes down to simple math.

This can happen if you itemize on your federal and state returns and get a larger tax benefit than you would if you claimed the standard deduction on your federal and state returns. Note that some states don’t allow itemized deductions, such as Michigan or Massachusetts. Read on to discover the pros and cons of a standard deduction vs. itemized deduction to decide which approach is best for you. It’s important to note that not all expenses can be itemized, and some itemized deductions are subject to limitations and phase-outs.

Tips to Get You Through Tax Season

Canceled checks or credit card statements aren’t enough—you need to keep receipts and other bills showing what you spent the money on. Itemized deductions allow you to convert otherwise taxable income into nontaxable income if you spend money on certain tax-privileged items. If you choose to itemize, tally up your various deductions item by item on Schedule A, then enter the total on your Form 1040 and file Schedule A with your tax return. For the tax years 2020 and 2021, tax filers were allowed to deduct up to $300 ($600 for married filing jointly) of cash charitable contributions they made, even if they took the standard deduction.

For most freelancers and independent contractors, it’s impossible to do any work without a computer. Working for yourself means you need to keep your skills sharp. Luckily, courses and study materials related to your field count as tax-deductible education expenses. Everything you spend on your freelance work or small business is tax-deductible on your Schedule C. You can always take those on top of the standard deduction.

Standard deduction amount for 2022-2023: How much it is and when to take it

Working with an accountant or using trusted tax software can help. The debate between itemizing or claiming the standard deduction became more complicated after the passage of the Tax Cuts and Jobs Act in December 2017. The TCJA eliminated some itemized deductions, including those involving work-related expenses, and it restricted others. On the other hand, the standard deduction was essentially doubled.