Should I Itemize or Take the Standard Deduction?
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To itemize or not to itemize? This is a question many taxpayers find themselves asking when tax season rolls around.
Thankfully, deciding whether you should itemize your deductions or take the standard deduction is usually straightforward. The main question you need to answer is: “Which method leads to a greater deduction for me?”
What is standard deduction?
The standard deduction explained
The standard deduction is essentially a tax freebie for everyone — it’s a flat dollar-for-dollar reduction of your taxable income.
Any taxpayer can take the standard deduction. How much you can deduct depends on your tax filing status. Here are the standard deduction amounts for tax years 2022 and 2023:
|Tax filing status||Standard deduction 2023||Standard deduction 2022|
|Head of Household||$20,800||$19,400|
|Married filing jointly and surviving spouse||$27,700||$25,900|
|Married filing separately||$13,850||$12,950|
Most taxpayers tend to take the standard deduction because it’s easy to do, and their itemized deductions wouldn’t end up being greater than their standard deduction anyway.
As you can see in the table above, the standard deduction typically increases every year to keep up with inflation. It can also be worth more in certain circumstances, like for taxpayers who are blind or over age 65.
If you aren’t sure what standard deduction amount you qualify for, try using the IRS How Much Is My Standard Deduction? tool.
What are itemized deductions?
Itemized deductions explained
Unlike the standard deduction, itemized deductions are different for everyone depending on your tax situation and how much you spent on qualified deductions during the tax year.
Some common itemized deductions include:
- Mortgage interest you paid during the tax year
- State and local taxes & personal property and real estate taxes up to $10,000
- Unreimbursed medical expenses
- Donations to qualified charities
Basically, add up all your possible itemized deductions. Is the amount greater than your standard deduction would be? If so, you could probably save money from itemizing this year! You can do this by using Schedule A when filling out your income tax return.
Just know that reporting every qualified itemized deduction can take a while. It takes patience and good recordkeeping throughout the year to ensure you’re maximizing your savings and not forgetting any deductions.
Pros and cons of standard vs. itemized deductions
|Standard deduction||Itemized deductions|
|Pros||· Quick and easy – no need to add up a list of individual deductions or keep a bunch of receipts
· Amount typically increases every year
· Taxpayers over age 65 or those who are blind get an increase to their standard deduction
|· Could add up to be worth more than the standard deduction
· Beneficial for homeowners who pay a lot of mortgage interest and property taxes
· Huge list of possible deductions to qualify for
|Cons||· You could be leaving money on the table if your itemized deductions would have been more than your standard deduction
· If you are married filing separately and your spouse chooses to itemize, you must itemize as well
|· More complex – you must know the rules and limits of each deduction
· Takes more time and meticulous recordkeeping
· It typically takes a lot of itemized deductions to add up to greater than the standard deduction
To maximize your tax savings, you should run the numbers both ways and choose the method that gives you the largest deduction.
- Are your itemized deductions greater than your standard deduction? If so, itemizing would save you money in most cases.
- Are your itemized deductions less than your standard deduction? If so, you’re better off taking the standard deduction.