Standard vs. Itemized Deductions:
Prior to the passage of TCJA, millions of taxpayers were able to claim a larger deduction on their tax returns by itemizing their deductions. Thanks to the higher standard deductions, this may no longer be necessary.
Between the 2018 and 2025 tax years, when the TCJA will be in effect, the number of taxpayers for whom itemizing will pay off is likely to drop significantly due to the much bigger standard deduction.
What does ‘itemize’ mean?
Instead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one.
- Generally, people itemize if their itemized deductions add up to more than the standard deduction. A key part of their tax planning is to track their deductions through the year.
- The drawback to itemizing is that it takes longer to do your taxes, and you have to be able to prove you qualified for your deductions.
- You use IRS Schedule A to claim your itemized deductions.
- Some tax strategies may make itemizing especially attractive. If you own a home, for example, your itemized deductions for mortgage interest and property taxes may easily add up to more than the standard deduction. That could save you money.
- You might be able to itemize on your state tax return even if you take the standard deduction on your federal return.
Deciding whether to itemize or take the standard deduction is a big part of tax planning, because the choice can make a huge difference in your tax bill.
What is the standard deduction?
Basically, it’s a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing.
Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation.
The standard deduction that you qualify for depends on your filing status, as the table below shows.
For tax year 2021.
The Standard Deductions are:
- Single: $12,550
- Married Filing Jointly $25,100
- Married Filing Separately $12,550
- Head of Household $18,800
The standard deductions were nearly doubled with changes brought by the Tax Cuts and Jobs Act for 2018 Key Takeaways.
- Itemized deductions help some taxpayers lower their annual income tax bill more than the standard deduction would provide.
- The surviving itemized deductions include several categories like medical expenses, mortgage interest, and charitable donations.
- Itemizing most often makes sense for higher-income earners who also have a number of large expenses to deduct.