As a general rule, you should take the bigger of the standard deduction vs. itemized deductions. Here’s why and answers to a few common concerns.
Standard Deduction vs. Itemized Deductions Explained
Both the standard deduction and itemized deductions reduce your taxable income. So the amount of income you’ll pay taxes on is less than what you actually earned during the year.
With the standard deduction, you get a fixed deduction based on your filing status. You don’t have to prove that you had any deductible expenses.
Here are the current standard deduction amounts:
|Single and Married Filing Separately||$12,950||$13,850|
|Married Filing Jointly and Qualifying Widower*||$25,900||$27,700|
|Head of Household||$19,400||$20,800|
|Single Age 65+||+ $1,750||+ $1,850|
|Married Filing Separately One Spouse 65+||+ $1,400||+ $1,500|
|Married Filing Separately Both Spouses 65+||+ $2,800||+ $3,000|
|Married Filing Jointly and Qualifying Widower Age 65+||+ $1,400||+ $1,500|
|Married Filing Jointly Both Spouses 65+||+ $2,800||+ $3,000|
|Head of Household Age 65+||+ $1,750||+ $1,850|
|Dependent with Unearned Income Only||$1,150||$1,250|
|Dependent with Earned and Unearned Income Totalling Less Than the Usual Standard Deduction Amount||Earned income plus $400||Earned income plus $400|
When you use the itemized deduction, you have to list out all of your deductible expenses.
Your deduction is usually equal to the amount you spent. Some itemized deductions have limits on how much you can deduct for a certain expense. Other times, you can only deduct your expenses that exceed a certain amount.
Common itemized deductions include:
- State and local taxes (property taxes, income taxes, and sales taxes)
- Mortgage interest
- Student loan interest
- Medical and dental expenses
- Charitable donations
When you file your tax return, you should add up your total itemized deductions together.
If they’re less than your standard deduction, take the standard deduction. If they’re more than your standard deduction, itemize your deductions.
Most tax filing software will automatically calculate which one is better for you.
Not all tax deductions are itemized deductions. For example, retirement savings, HSA savings, and business expenses are not itemized tax deductions.
You can still take other types of deductions even if you use the standard deduction.
Common Concerns About Using Itemized Deductions
Here are some common reasons people are hesitant to itemize deductions.
Will itemizing deductions get me audited?
While the IRS keeps how often they choose to audit tax returns a secret, itemized deductions almost certainly have a somewhat higher chance of getting audited than the standard deduction.
First, the IRS does more audits in the places where people cheat the most. Second, since the standard deduction is standard, there’s nothing for the IRS to audit unless you made a math error their computers will catch when they process your tax return.
You shouldn’t pay more taxes because you’re worried about an audit, though.
Most IRS audits are just a letter in the mail that says to send copies of your receipts or other information to prove your deductions. If you played by the rules, you can often take care of an IRS audit in under an hour.
Itemizing deductions is too much work.
OK, I’ll give you that if itemizing only saves you $1 in taxes, it might be easier to take the standard deduction. But you often won’t know until the end of the year whether your itemized deductions could be much larger.
Many itemized deductions, like the mortgage interest deduction or student loan interest deduction, just require you to copy numbers from the tax forms your lender sends you.
For others, like medical expenses or charitable contributions, you might need to keep track of what you spent in your budgeting software and save your receipts.
So itemizing deductions really isn’t that hard and could get you a much lower tax bill.
Filing itemized deductions costs too much.
Many (but not all) tax filing software providers charge extra if you use itemized deductions or claim specific itemized deductions. In-person tax preparers usually work the same way.
When a CPA or Enrolled Agent does your taxes, it does take extra work to fill out more tax forms (and some are harder than others).
If you’re using tax filing software, just pick one that won’t charge you extra.