In this article, we will discuss the standard deduction and the itemized deduction, along with the changes that have occurred to both options starting in 2018. The standard deduction and the itemized deduction are two options provided by the Internal Revenue Service (IRS) for taxpayers. The value of the deduction is subtracted from taxable income, and then the tax bill is calculated based on the remaining amount.
Standard Deduction
The amount of the standard deduction you are entitled to depends on your tax filing status. The adjustments for 2022 outlined below (in the middle column) are generally based on tax returns filed at the beginning of 2023.
- Filing status: 2021 tax status – 2022 tax status – 2023 tax status
- Single: $12,550 – $12,950 – $13,850
- Married filing jointly: $25,100 – $25,900 – $27,700
- Married filing separately: $12,550 – $12,950 – $13,850
- Head of household: $18,800 – $19,400 – $20,800
Since the standard deduction is adjusted for inflation, it gradually increases each year. Adjustments to various components of the tax law prevent inflation from pushing you into a different tax bracket instead of an increase in income.
Special Rules for Dependents and Seniors
Individuals aged 65 and older and those who are legally blind are entitled to an additional deduction beyond the standard deduction.
- The additional amounts for 2022 are: $1,750 for single or head of household – $1,400 for married couples where either you or your spouse is elderly or blind – $2,800 if you are married and both you and your spouse are elderly or blind
- Note: These amounts do not apply if someone else can claim you as a dependent. In this case, the standard deduction is the greater of $1,150 or your earned income plus $400 in 2022. The standard deduction for a single return cannot exceed this amount.
For 2023, these figures change to:
- $1,850 for single or head of household
- $1,500 for married couples where either you or your spouse is elderly or blind
- $3,000 if you are married and both you and your spouse are elderly or blind
Itemized Deduction
The itemized deduction allows you to convert taxable income into non-taxable income if you spent money on certain tax-protected items. If you choose to itemize deductions, total the various deductions line by line on Schedule A, then enter the total on your Form 1040 and submit Schedule A with your tax return.
Some available itemized deductions include:
- Medical expenses: Medical, dental, and prescription drug expenses and other healthcare costs, including some insurance premiums, that exceed 7.5% of your adjusted gross income (AGI) are deductible.
- Taxes paid: You can claim state and local income taxes, sales taxes, property taxes, or personal property taxes, up to $10,000. This limit is reduced to $5,000 for married individuals filing separately.
- Charitable donations: You can claim contributions and donations made to qualified organizations up to 60% of your AGI. Most excess charitable contributions can be carried over to future tax returns.
- Gambling losses: As long as your losses do not exceed your total gambling winnings reported, you can deduct these using Schedule A.
Note: Many qualified deductions have changed due to the Tax Cuts and Jobs Act starting in 2018. For example, deductions for things like moving expenses, job search expenses, unreimbursed employee expenses, as well as deductions for alimony payments, tax preparation fees, and home office expenses have been eliminated. Interest on home equity loans is no longer deductible, along with deductions for uninsured disaster losses.
Changes
With the Tax Cuts and Jobs Act
The debate between itemized deductions and the standard deduction became more complex following the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017. The TCJA eliminated some itemized deductions, including those related to job expenses, and limited others. On the other hand, the standard deduction nearly doubled.
Where you previously benefited from itemized deductions for losses due to disasters and theft, it is now limited to those occurring in a federally declared disaster area.
Above-the-Line Deductions
Above-the-line adjustments to income include teacher expenses, contributions to certain qualified retirement plans, and student loan interest. These expenses are deducted directly from your income to determine your AGI. You can claim them in addition to the standard deduction or your total itemized deductions, which in turn reduce your AGI.
Choosing Between Itemized Deductions and the Standard Deduction
The IRS believes many people may find it more beneficial to take the standard deduction rather than itemizing.
Note: The total itemized deductions across all categories may add up to a few extra dollars over your standard deduction amount – if they exceed the standard deduction at all. However, if not, you will save more in taxes if you invest the time and effort in itemizing.
Ultimately, it depends on your personal tax situation and which option reduces your taxable income the most. You will need to crunch the numbers to see if your itemized deductions exceed the standard deduction. Working with a CPA or using reliable tax software can help with this.
Here’s a warning: If you file separate returns with your spouse, you must either both take the standard deduction or both itemize. Your returns must match in this regard.
Frequently Asked Questions (FAQs)
Should I itemize or take the standard deduction?
It depends. If your total itemized deductions are less than your standard deduction amount, it may not make sense to itemize. If you expect your itemized deductions to be only slightly higher than your standard deduction, the time it takes to itemize may not be worth it. The IRS indicates that taxpayers with large unreimbursed medical and dental expenses or mortgage interest may benefit from itemizing.
What is the difference between itemized deductions and the standard deduction?
Itemized deductions are deductions you calculate yourself using the various deductions the IRS provides. The standard deduction, on the other hand, is a specific amount published by the IRS each year. In many cases, taxpayers can get a larger deduction using the standard deduction instead of itemizing.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and of high quality.
IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2023.”
IRS. “The IRS Provides Tax Inflation Adjustments for the Tax Year 2021.”
IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.”
IRS. “26 CFR 601.602: Tax Forms and Instruction (2022), Page 14.”
IRS. “Topic No. 551 Standard Deduction.”
IRS. “26 CFR 601.602: Tax Forms and Instruction (2023), Page 14.”
IRS.
“Topic No. 502 Medical and Dental Expenses.”
IRS. “Sales Tax Deduction Calculator.”
IRS. “Publication 526, Charitable Contributions.”
IRS. “Topic No. 419 Gambling Income and Losses.”
IRS. “Itemize or Choose the Standard Deduction.”
IRS. “Topic No. 515 Casualty, Disaster, and Theft Losses.”
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Source: https://www.thebalancemoney.com/standard-deduction-or-itemized-deductions-3193142
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