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When it comes to filing your taxes, understanding deductions is vital to maximizing your potential refund or minimizing what you owe. In short, a deduction is an amount you can subtract from your taxable income to reduce the overall amount subject to taxation. When filing your taxes, there are two ways to claim a deduction: by taking a standard or itemized deduction.
The difference between the standard deduction vs. 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 deduction reduces your tax bill the most. You are not allowed to claim both.
Read on to better understand the difference between the two terms.
Standard deduction
What is a standard deduction? While we covered the basics above, let’s get more specific. The standard tax deduction is a fixed dollar amount that reduces the income you’re taxed on and is the most common type of deduction taxpayers take. 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 for itemizing deductions
- Allows you to avoid keeping records and receipts of your expenses in case of a tax audit
The standard deduction amount varies according to your filing status. Here are the amounts for tax year 2022:
- For single or married filing separately — $12,950
- For married filing jointly or qualifying widow(er) — $25,900
- For head of household — $19,400
You’ll have a higher standard deduction if you’re legally blind or 65 or older. It increases by $1,850 if you’re Single or Head of Household and by $1,500 for each spouse if you’re Married Filing Jointly, Married Filing Separately, or filing as a Surviving Spouse. If you’re both over 65 and blind, the deduction amount is doubled.
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What is an itemized deduction and how does it work?
Itemized deductions also reduce your Adjusted Gross Income (AGI), but work differently than the standard deduction. As the name implies, the standard deduction is a standard (or fixed) amount. In contrast, the itemized deduction is a dollar-for-dollar deduction that differs from taxpayer to taxpayer. The itemized deduction amount is determined by adding all applicable deductions and subtracting the sum from your taxable income. Common itemized deductions include:
- Casualty and theft losses from a federally declared disaster
- Charitable donations
- Deduction for state and local taxes
- Gambling loss deduction (only to extent of gambling winnings reported on your tax return)
- Home mortgage interest
- Unreimbursed medical and dental expenses (AGI threshold is 7.5%), including health insurance premiums paid with after-tax income
How do you decide which deduction to claim?
So, which one’s best for you? Really it comes down to the amount that is the most. First, calculate your itemized deductions. You might be able to claim some itemized deductions on your state return even if you can’t claim them on your federal return. You will need IRS Form 1040 – Schedule A: Itemized Deductions to determine the amount of your itemized deduction.
Then, compare the itemized deduction amount to the standard deduction (based on your filing status). If the amount of your itemized deduction exceeds the standard deduction, then you will claim itemized deductions on your tax return.
Standard vs. itemized deduction example using 2023 amounts
If you’re a taxpayer filing as Single and your AGI is $40,000 with itemized deductions of $14,000, then your taxable income is reduced to $26,000. If you elected to use the standard deduction, you would only reduce your AGI by $13,850, making your taxable income $26,150. In this example, you should opt to take itemized deductions.
When to itemize vs. take the standard deduction?
In some situations, itemizing makes more sense. Here are some common situations:
- You have itemized deductions totaling more than the standard deduction you would receive.
- You incurred significant out-of-pocket unreimbursed medical and dental expenses within the tax year.
- You paid real estate taxes and home mortgage interest on your home (See more about deducted mortgage interest and Form 1098).
- You had large, uninsured casualty (fire, flood, wind) or theft losses from a federally declared disaster.
- You have large gambling losses (and enough gambling winnings to offset those losses)
- You made substantial charitable contributions.
- You had 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 another situation where you may want to itemize deductions even if your total itemized deductions are less than your standard deduction: 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. Residents of some states, like Michigan (which does not allow a standard deduction for most taxpayers) or Massachusetts (which doesn’t allow standard deductions) should consider this.
Get help claiming itemized or standard deductions
Need help deciding whether claim itemized vs. standard deduction this tax season? Whether you choose to file with a tax pro or file with H&R Block Online, we can help you navigate your taxes. Plus, you can rest assured that we’ll get you the biggest refund possible by finding potential tax breaks and credits.
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