One thing to help ease the burden of paying taxes is to choose the deduction that will allow you to keep more of your hard-earned money. When you’re talking about tax deductions, the IRS provides you with two options: take the simple standard deduction or choose the itemized deduction. You’re only allowed to pick one, therefore, you need to select the one that will reduce your taxable income the most.
Standard Deduction vs Itemized Deduction?
A standard deduction is a lump sum amount determined by IRS that may be deducted from your taxable income while an itemized deduction is an expense that you can deduct from your taxable income.
If you opt for the standard deduction, you cannot choose the amount to be deducted from your taxable income. The good thing is you don’t need to deal with all the receipts and detailed calculations required for an itemized deduction.
An itemized deduction, on the other hand, is a qualified expense that you can deduct from your taxable income to minimize your tax burden. This tax deduction option is a more detailed way of reducing your taxable income since you will be required to enter each of the expenses in Schedule A and attach them to your tax return.
When must I get the standard deduction?
Consider taking the standard deduction if it is larger than the itemized deductions. For the 2018 tax year, the standard deduction nearly doubled, and it has climbed every year since. For the 2022 tax year (those filed in 2023), you are qualified to claim one of the following standard deductions, depending on your tax filing status.
If you are blind or 65 or older, your standard deduction rises. If you’re single or the head of the family, the amount rises by $1,650; if you’re married or a qualified widow(er), it rises by $1,300.
The following are the main advantages of the standard deduction:
- It is quick, simple, and time-saving. It is essentially a procedure that runs automatically and doesn’t require you to spend any time or effort tracking expenses. It spares you the hassle of submitting supporting evidence, completing a Schedule A form, or having to comprehend the subtleties of tax law.
- Some taxpayers are entitled to a greater deduction. A higher standard deduction may be available to some people due to their age or infirmity.
- Anyone can claim it. Even if you don’t have any expenses that qualify you for itemized deductions, you’ll be able to claim a standard tax deduction.
The standard deduction is a simple and straightforward strategy, but depending on your financial condition, it might not be the greatest choice. There are some disadvantages of taking the standard deduction:
- It has filing limitations.
If you are married but filing separately and your spouse itemizes, you may not be able to take the standard deduction. The same holds true if you are listed as someone else’s dependent on their tax return. The standard deduction is also not available to nonresident aliens, dual-status aliens, or taxpayers submitting returns for periods shorter than a year.
- You might receive a lower deduction in the end.
The amount of the standard deduction can be less than what you could deduct if you itemized.
Who are not eligible for the Standard Deduction?
Certain taxpayers aren’t entitled to the standard deduction:
- A married individual filing as married filing separately whose spouse itemizes deductions
- An individual who was a nonresident alien or dual-status alien during the year (see below for certain exceptions)
- An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period
- An estate or trust, common trust fund, or partnership
However, certain individuals who were nonresident aliens or dual-status aliens during the year may take the standard deduction in the following cases:
- A nonresident alien who is married to a U.S. citizen or resident alien at the end of the tax year and makes a joint election with his or her spouse to be treated as a U.S. resident for the entire tax year;
- A nonresident alien at the beginning of the tax year who is a U.S. citizen or resident by the end of the tax year is married to a U.S. citizen or resident at the end of the tax year, and makes a joint election with his or her spouse to be treated as a U.S. resident for the entire tax year; and
- Students and business apprentices who are residents of India and are eligible for benefits under paragraph 2 of Article 21 (Payments Received by Students and Apprentices) of the United States-India Income Tax Treaty
When Should I Itemize My Deductions?
If you can’t use the standard deduction or when your deductions exceed the standard deduction, itemize them.
Itemized deductions, in contrast to the standard deduction, may yield a different sum for every taxpayer. There are five basic categories for itemized deductions that are claimed on a Schedule A form:
- Medical and dental expenses.
- Taxes you paid.
- The interest you paid.
- Gifts to charity.
- Casualty and theft losses.
In addition, there are less common itemized deductions that are included in the final section of Schedule A, such as:
- Gambling losses (to the extent of taxable gambling winnings)
- Amortizable bond premiums
- Impairment-related work expenses of a disabled person
Here are some of the advantages of itemizing deductions:
- You can deduct more expenses from your taxable income.
- Increased tax savings are possible. When itemizing, you may be eligible for a bigger tax refund since you can take more deductions into account.
However, itemizing deductions also has some drawbacks.
- Additional documentation and time are required. Contrary to normal deductions, itemizing involves assembling supporting documents and keeping track of expenses.
- Some itemized deductions are subject to limitations.
If you’re still unsure whether to itemize your deductions, compare the sum of your itemized deductions to the standard deduction that is available to you based on your filing status. Itemizing makes sense for you if your total deductions exceed the standard deduction. However, it makes more sense to claim the standard deduction if you fall below that cutoff.
Sources:
Taxpayers should know the difference between standard and itemized deductions
The Pros and Cons of Standard vs. Itemized Tax Deductions
Standard Deduction vs. Itemized Deduction: Which Should I Choose?
https://www.ramseysolutions.com/taxes/itemizing-vs-standard-deduction
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