Standard vs. Itemized Deductions

Feb 2, 2023 | Financial Planning, Tax & Accounting

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction – but not always. Let’s look at a few details about these two options.

Standard deduction

The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4.

Not all taxpayers can take a standard deduction. Those taxpayers include:

  • A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
  • An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
  • An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions

Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

  • State and local income or sales taxes
  • Real estate and personal property taxes
  • Home mortgage interest
  • Mortgage insurance premiums on a home mortgage
  • Personal casualty and theft losses from a federally declared disaster
  • Gifts to a qualified charity
  • Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Don’t hesitate to contact the office for more information on these limitations or any other questions.

Recent Posts

State Payments Excluded From 2022 Federal Returns

State Payments Excluded From 2022 Federal Returns

Taxpayers in 21 states received special payments related to general welfare and disaster relief in 2022. However, according to recently issued guidance from the IRS, they will not need to report these payments on their 2022 federal tax returns. The special tax refunds...

Five Overlooked Tax Breaks For Individuals

Five Overlooked Tax Breaks For Individuals

Are you confused about which credits and deductions you can claim on your 2022 tax return? You’re not alone. With tax law becoming more complicated every year, it’s hard to remember which tax breaks are available in any given year. With that in mind, here are five tax...

Tax Implications When Employed in the Family Business

Tax Implications When Employed in the Family Business

When a family member employs someone, the tax implications depend on the relationship and the type of business. Taxpayers and employers need to understand their tax situation. Here is what to know: Married People in Business Together Generally, a qualified joint...

What To Do If You’re Missing Important Tax Documents

What To Do If You’re Missing Important Tax Documents

As the April 18th tax deadline quickly approaches, last-minute tax filers should make sure they have all their documents before filing a tax return. You should have received a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your...

Call Now ButtonCall Now