Taxpayers have two deduction options: a Standard Deduction or Itemized Deduction. They can either claim the standard deduction or itemized deduction to lower their taxable income. *Taxpayers can do both. Many them might have a question which is better to take for their tax return. Let’s start understanding the difference between Standard Deduction and Itemized Deduction.
The standard deductions is a fixed amount that lower the income individuals taxed on. Congress sets the amount of the standard deduction each year. In 2020 standard deduction is:
|FIling Status||2020 Tax Year||2021 Tax Year|
|Married, filing Separately||$12,400||$12,550|
|Married, filing jointly||$24,800||$24,800|
|Head of Household||$18,650||$18,800|
Claiming the standard deduction makes the taxpayer’s process much easier and quicker, which is one of reason that most taxpayers claim the standard deduction instead of itemized deduction.
On the other hand, Itemized deductions have a list of eligible expenses and taxpayer can take for various expenses they incurred during the tax year. It sometimes exceed the standard deduction, which means that itemizing allows taxpayers to reduce their taxable income. Most common itemizing expenses:
- Medical expenses
- Charitable contributions
- Mortgage interest
- Property Taxes
- Student loan interest
- Child and dependent care tax credit
- American Opportunity tax credit
- State and local taxes
- Gambling losses
- IRA contributions
- 401 (k) contribution
- Educator expenses
And, more deductions available.
Which to take?
If your standard deduction is less than itemized deduction, you should itemized to reduce your taxable income.