At tax time, one major decision can help you maximize your tax benefits: You can either itemize your deductions or take the standard deduction — but you can’t do both. So how do you figure out which one is right for you? Show Most taxpayers go with the standard deduction, especially after the Tax Cuts and Jobs Act overhauled the federal tax code starting in 2018. Almost 90% of taxpayers take the standard deduction now, according to estimates from TurboTax and H&R Block. Here’s what you need to know about both strategies. (Photo: Getty Creative)Standard deductionThe standard deduction is a set amount that lowers taxable income. The set amount changes each year and often varies by the taxpayer’s filing status (single filer, married filing jointly, married filing separately, and head of household), along with other factors, such as your age or whether another taxpayer can claim you as a dependent. For the 2020 tax year, the standard deduction amounts are:
Itemized deductionsItemizing is worth doing if all of your deductions add up to more than the amount of the standard deduction that applies to you. In this case, you’ll owe less taxes and potentially get a larger tax refund. Certain situations make it more likely that you may want to itemize your taxes based on the deductions available to you. These include:
Most tax software can help you itemize your deductions. You’ll report the expenses on Schedule A, Itemized Deductions when filing your income tax return. Doing the math Choosing the best tax strategy for you comes down to simple math:
Take a look at one example. Say you paid $10,000 in interest on a home equity loan and a primary mortgage in 2020, and you’re a single filer. Because $10,000 is lower than the standard deduction of $12,400, it won’t make sense to itemize. You’d be better off claiming the standard deduction. You can use the Internal Revenue Service’s Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount of your standard deduction and whether you should itemize your deductions. Above-the-line deductionsSome deductions you can take without itemizing your taxes. These include deductions for:
There’s a new above-the-line deduction this year, too. Thanks to the CARES Act, cash donations to charitable organizations up to $300 made last year can be deducted from your 2020 taxes without itemizing. Make sure to have receipts or other documents that show your contributions. Read more information and tips in our Taxes section Read more personal finance information, news, and tips on Cashay Follow Cashay on Instagram, Twitter, and Facebook Generally, you must decide whether to itemize deductions or to use the standard deduction. You should itemize deductions if your allowable itemized deductions are more than your standard deduction. Some taxpayers must itemize deductions because they do not qualify for the standard deduction. Those taxpayers not eligible to use the standard deduction include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize deductions. For additional information, refer to IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. What Are Itemized Deductions?Itemized deductions are certain expenses that you can use to lower your taxes. The categories of itemized deductions are:
Limitations on Itemized DeductionsYou may be subject to a limit on some of your itemized deductions based on your adjusted gross income. Refer to IRS Form 1040 Instructions (PDF) for these limitation amounts. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest. For more information on itemized deductions compared to using the standard deduction, refer to IRS Form 1040, Schedule A and B (PDF), or IRS Publication 17, Your Federal Income Tax. Should I be doing itemized deductions?Here's what it boils down to: If your standard deduction is less than your itemized deductions, you probably should itemize. If your standard deduction is more than your itemized deductions, it might be worth it to take the standard deduction and save some time.
Who should itemize their deductions?If the value of expenses that you can deduct is more than the standard deduction (as noted above, for the tax year 2022 these are: $12,950 for single and married filing separately, $25,900 for married filing jointly, and $19,400 for heads of households) then you should consider itemizing.
Who is required to itemize?Some taxpayers must itemize deductions because they do not qualify for the standard deduction. Those taxpayers not eligible to use the standard deduction include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.
How do you determine itemized deductions?Use Schedule A (Form 1040 or 1040-SR) to figure your itemized deductions. In most cases, your federal income tax will be less if you take the larger of your itemized deductions or your standard deduction.
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How to know if i should itemize deductions
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