What’s the difference between the standard deduction and itemized deduction?
The difference between the standard deduction and itemized deduction comes down to simple math. The standard deduction lowers your income by one fixed amount. On the other hand, itemized deductions are made up of a list of eligible expenses. You can claim whichever lowers your tax bill the most.
When we hear the question “what is a standard deduction?” – we think of two things. First, let’s start with a definition. The standard deduction is a fixed dollar amount that reduces the income you’re taxed on. Your standard deduction varies according to your filing status. Secondly, you may want to know what is the standard deduction amounts are. They are:
- For single or married filing separately — $12,400
- For married filing jointly or qualifying widow(er) — $24,800
- For head of household — $18,650
Your standard deduction increases if you’re blind or age 65 or older. It increases by: $1,650 if you’re single or head of household and by $1,300 if you’re married or a qualifying widow(er).
Most taxpayers claim the standard deduction. The standard deduction:
- Allows you to take a tax deduction even if you have no expenses that qualify for claiming itemized deductions
- Eliminates the need to itemize deductions, like medical expenses and charitable donations
- Lets you avoid keeping records and receipts of your expenses in case you’re audited by the IRS
What is an itemized deduction?
After defining standard deductions, we’ll walk through “what is an itemized deduction?” Itemized deductions also reduce your adjusted gross income (AGI), but it works differently than a standard deduction. Unlike the standard deduction, the dollar amount of itemized deductions differs from taxpayer to taxpayer. While standard deductions are –as the name implies – a standard (or fixed) amount, itemized deductions are calculated by adding up all applicable deductions, then subtracting that number from your taxable income.
Here’s an example using 2020 amounts: If you’re single and your AGI is $40,000 with itemized deductions of $14,000 your taxable income is $26,000. If you elected to use the standard deduction, you would only reduce AGI by $12,400 making your taxable income $27,600, so in this case, you’d want to take itemized deductions.
When to itemize vs. take the standard deduction?
In some situations, it makes sense to itemize vs. take the standard deduction on Form 1040. Itemizing your tax deductions makes sense if you:
- Have itemized deductions that total more than the standard deduction you would receive (like in the example above)
- Had large, out-of-pocket medical and dental expenses
- Paid mortgage interest and real estate taxes on your home
- Had large, uninsured casualty (fire, flood, wind) or theft losses
- Made large contributions to qualified charities
- Have gambling losses
- Have other allowable deductions such as impairment-related work expenses of a disabled person or repayment of amounts subject to a claim of right over $3,000
Standard deduction vs. itemized deductions – state tax considerations
There’s one situation where you may want to itemize deductions even if your total itemized deductions are less than your standard deduction. You might want to do this if you’d pay less tax overall between your federal and state taxes. 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.
Questions about claiming itemized vs. standard deduction
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