Tax deductions

The Pros and Cons of Standard Tax Deductions vs. Itemized Tax Deductions

Although you don’t have much choice when it comes to paying taxes, there are deductions available to reduce the amount…

Although you don’t have much choice when it comes to paying taxes, there are deductions available to reduce the amount you owe Uncle Sam. Deductions protect some of your income from income tax. income, and they have become particularly important in recent years.

Prior to the passage of the Tax Cuts and Jobs Act of 2017, taxpayers could claim a $4,050 exemption for themselves and each of their dependents. However, these exemptions have been eliminated by law, making deductions the primary means of reducing taxable income.

However, that wasn’t the only change. “Under TCJA, they dramatically changed the standard deduction,” says Shamisa Zvoma, CPA and tax practitioner at accounting firm Friedman LLP in New York.

The standard deduction is the government’s built-in subtraction that you can take when preparing your taxes. The other option for taxpayers is to itemize deductions. The breakdown is made up of individual deductions that together can help reduce the amount of taxable income you pay.

Read on to learn the pros and cons of a standard deduction versus an itemized deduction to decide which approach is right for you.

[READ: Your Guide to 2021 Tax Deductions.]

Standard deduction

To make up for the loss of personal exemptions, the standard deduction was nearly doubled for the 2018 tax year, and it has increased every year since. Depending on your tax status, you are entitled to one of the following standard deductions for the 2021 tax year:

— Single or married declaring separately: $12,550.

— Head of household: $18,800.

— Married declaring jointly or qualified widow(er): $25,100.

“A standard deduction is something you get on your return without doing anything else,” says Paul Joseph, CPA and owner of Joseph & Joseph Tax & Payroll in Williamston, Michigan. With few exceptions, all taxpayers are entitled to this deduction without conditions.

Here are the main advantages of the standard deduction:

— It’s easy, convenient and saves time.

— Some taxpayers are entitled to a larger standard deduction.

“Anyone can claim it.

It’s easy, convenient and saves time. If you want your taxes to be as simple as possible, opting for the standard deduction may be the wisest solution. “By default, everyone takes the standard deduction,” says Zvoma. Claiming it is essentially an automatic process that doesn’t require you to spend time or energy tracking expenses. As a result, it saves you from having to provide documents, fill out a Schedule A form, or understand the nuances of tax law.

Some taxpayers are entitled to a larger deduction. Some people may be eligible for an increase in their standard deduction based on age or disability. Taxpayers aged 65 and over or blind are entitled to an additional deduction of $1,300 if you are married or qualifying widow(er) and $1,650 if you are single or head of household.

Anyone can claim it. You will be eligible for a standard tax deduction even if you have no expenses that allow you to make itemized deductions. “You get the deduction even if you don’t own a home or donate to charity,” says Abby Donnellan, CPA and senior tax strategist on the CWCJ team at financial firm Moneta.

Although the standard deduction is a simple method, it may not be the best option depending on your financial situation. Here are the disadvantages of the standard deduction:

— Standard deductions have deposit limits.

— You could end up with a smaller deduction.

Standard deductions have deposit limits. You won’t be able to take a standard deduction in a few scenarios. For example, if you are married but are filing separately, you may not be eligible for the standard deduction if your spouse is filing. The same applies if you are claimed as a dependent on someone else’s statement. Although not as common, if you are a non-resident alien, dual status alien, or someone filing taxes for less than a year, you will also not be eligible. to the standard deduction.

You could end up with a smaller deduction. The amount of the standard deduction may be less than the amount you could deduct if you itemize. For example, the standard deduction may be less than the total amount of mortgage interest, property taxes, and charitable contributions you paid that could be deducted.

[READ: 12 Tax Deductions That Have Disappeared.]

Detailed deductions

Unlike the standard deduction, itemized deductions may result in a different amount for each taxpayer. Itemized deductions are claimed on a Schedule A form and are broken down into five main categories:

— Medical and dental expenses.

— Taxes you have paid.

— Interest you paid.

— Charitable donations.

— Injury and theft.

Taxpayers may also include other itemized deductions that result from less common situations such as gambling losses and certain unrecovered pension investments. Prior to the passage of the Tax Cuts and Jobs Act, workers could also itemize their unreimbursed expenses, but this is no longer the case. “All of that is gone now and it’s hurt (taxpayers’ ability) to itemize deductions,” Joseph says.

Here are the benefits of itemized deductions:

— You can claim more expenses.

— You can save more money in taxes.

You can claim more expenses. Mortgage interest, property taxes, and medical expenses are just some of the expenses allowed with the breakdown. Although some of these categories have caps or limits, taxpayers with large mortgages who donate generously to charity may find that they get a larger deduction by itemizing.

You can save more money. Because you can include more deductions when allocating, you could earn a larger tax refund. The amount you save by retailing will depend on your tax bracket. For example, income taxed in the 24% tax bracket will see a tax savings of 24 cents for each itemized dollar above the standard deduction. “Ideally, you’ll want to be in a situation where you’re detailing,” Zvoma says.

Itemizing deductions has some drawbacks, however. Here are the disadvantages of itemized deductions:

— It takes more paperwork and effort to detail.

— There are restrictions on certain itemized deductions.

[Read: Tax-Filing in 2022: What’s My Tax Bracket?]

It takes more paperwork and effort to detail. Unlike standard deductions, allocating is a manual process that requires documenting and accounting for expenses. Depending on the quality of your records and the amount of your deductions, this tedious process may not reduce your taxable income enough to make it worthwhile. To determine whether it’s worth itemizing, consider how much you’re paying in mortgage interest, charitable donations, and state and local taxes.

There are restrictions on certain itemized deductions. The Tax Cuts and Jobs Act caps the itemized deduction for state and local taxes, including property taxes, at $10,000. In addition, interest on home equity loans taken out for purposes other than renovation are no longer deductible, and only interest on the first $750,000 of a new mortgage can be included. If you want to deduct medical and dental expenses, only those that exceed 7.5% of your adjusted gross income can be itemized. “A lot of people come in thinking they’re going to get medical deductions,” Donnellan says, but unless someone has very high expenses or very low income, that’s unlikely.

When to itemize or take the standard deduction

Anyone with deductible expenses that exceeds the standard deduction must itemize. For most people, that means having mortgage interest or property taxes to deduct. However, even owning a home does not guarantee that someone will be able to itemize.

“You have to keep in mind that one of the biggest deductions is the taxes (state and local) you pay, and they’re limited to $10,000,” says Joseph. Unless someone has large charitable donations or a major medical event, it can be difficult to find enough deductions to itemize.

However, even if you can’t itemize, Donnellan reminds people that the government allows a deduction above the $300 line for charitable cash donations made in 2021. This allows married couples filing jointly to deduct up to ‘at $600 on their 2021 tax return even if they don’t file a Schedule A form for the breakdown.

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The Pros and Cons of Standard Tax Deductions vs. Itemized Tax Deductions originally appeared on

Update 2/22/22: This story was published at an earlier date and has been updated with new information.