The Standard Deduction vs. Itemized Deductions
What’s the Difference & What Can You Claim on Your Return?
Ah, things were much simpler when you were young. When it was time to file your income tax return as a single taxpayer, you probably either did it yourself or simply dropped it off at the local tax preparer’s office. Perhaps you even used the 1040EZ Form.
As you get older, along come the dependents, debt obligations, and other responsibilities. Your tax liability increases and suddenly filing a return has gotten a lot more complicated. But don’t despair! The federal government offers a number of tax benefits (with certain eligibility requirements) that can help ease your tax burden, including tax deductions.
Tax deductions lower your taxable income. In general, a taxpayer must decide between using itemized deductions or taking the standard deduction. That means if you claim the standard deduction, you cannot itemize deductions. Conversely, if you itemize deductions, you cannot claim the standard deduction. You are allowed to use whichever type of deduction results in the lowest tax.
The Standard Deduction
Your standard deduction amount is based on your filing status and it is subtracted from your AGI (adjusted gross income). In other words, it reduces the amount of income you’re taxed on. For tax year 2018, the standard deduction amounts are:
- $12,000 for single filers
- $12,000 for married couples filing separately
- $24,000 for married couples filing jointly
- $18,000 for head of household filers
- $24,000 for qualifying widow(er)s
Note that the standard deduction amounts often change from year to year.
Itemized deductions also lower your taxable income, but they are based on your income level and are calculated using the percentage from your marginal tax bracket. For example, if you are in the 24% tax bracket, a $1,000 deduction saves you $240 in tax (0.24 x $1,000 = $240).
To calculate how much your itemized deductions are worth, you must add up the tax-deductible expenses you paid during the year. This may include the following:
- Home mortgage interest
- State and local income taxes or sales taxes (but not both)
- Real estate and personal property taxes
- Gifts to charities
- Casualty or theft losses
- Unreimbursed medical expenses
- Unreimbursed employee business expenses
Note that some itemized deductions are based on a minimum amount (or “floor”), meaning that you can only deduct amounts that exceed the specified “floor.”
Which Type of Deduction Is Better For You?
If you own a house, donate to a charity, or visit the doctor fairly often, it may make more sense for you to consider itemizing your deductions rather than taking the standard deduction. It is generally recommended that you itemize deductions if their total is greater than your standard deduction.
Here are some things to keep in mind when you are considering whether to claim the standard deduction or itemize your deductions:
Income, Age, and Filing Status
Your income and filing status will determine how much you can claim for the standard deduction as well as itemized deductions. While the standard deduction is a fixed dollar amount that’s based on your filing status, itemized deductions are based on your income level and tax bracket/rate. Also note that there’s an additional standard deduction for elderly and blind taxpayers, which is worth $1,300 for tax year 2018 (this amount increases to $1,600 if the taxpayer is also unmarried).
Dental and Medical Expenses
In general, you can deduct expenses that you paid during the year for medical or dental care for yourself, your spouse, and your dependents. Medical care expenses may include doctor/dentist fees, prescription drugs, hospital and laboratory services, nursing or care facilities, and the cost of travel to appointments.
Taxes You Paid
Take into account the amount you paid towards state and local income taxes (from your paystub or W-2), real estate taxes (from your mortgage lender’s statement), property taxes (from your county tax bill or your mortgage company statement), and any other deductible taxes.
Consider the amount of home mortgage interest and any mortgage points you paid, which can be found on your mortgage lenders statement or loan origination document. Also look at the amount of investment interest and dividends you received, if applicable, as well as any investment interest you paid (which can be found on your account statement or Form 1099-DIV / Form 1099-INT from your brokerage firm or bank).
Did you make donations to charity? You should keep track of the cash value of any donations you made and make sure you have a receipt/record of each donation. Note that you must file IRS Form 8283 (Noncash Charitable Contributions) if your total deduction for all noncash contributions is greater than $500.
To compare the standard deduction versus itemized deductions for your particular situation, you may want to try using a tax calculator or seek the help of a qualified tax professional.
For more information about the standard deduction and itemized deductions, refer to IRS Publication 17 (Your Federal Income Tax For Individuals).