Standard vs Itemized Deduction
Published on October 17, 2024
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
Should I take the Standard Deduction or Itemized?
It depends. Deciding between the Standard Deduction and Itemized Deduction depends on the kinds of expenses you’ve had throughout the year and what will help lower your taxes the most.
What is the difference between Standard Deduction and Itemized Deduction?
The Standard Deduction is a fixed dollar amount that the IRS lets everyone subtract from their taxable income.
It’s simple, and you don’t have to list or show proof of specific expenses. In 2024, the amounts are set based on your filing status. For instance, it’s US$14,600 if you file as single and US$29,200 if you’re married and filing jointly.
The Itemized Deduction, on the other hand, means you list specific expenses you’ve had throughout the year—like medical bills, home mortgage interest, or charitable donations—and subtract those.
When does it make sense to choose one over the other?
- Standard Deduction: If your expenses aren’t too high, it’s easier to take the Standard Deduction. It’s faster, requires no extra paperwork, and saves you time.
- Itemized Deduction: If you had significant expenses—like large medical bills, mortgage interest, or made big charitable donations—it might save you more on taxes if you itemize those instead.
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What expenses can be claimed with Itemized Deductions?
- Mortgage Interest: Interest paid on a home mortgage, including loans for your primary residence or a second home.
- Property Taxes: State and local property taxes are deductible but capped at a total of US$10,000 for state and local taxes, including income or sales tax.
- Charitable Contributions: Donations to qualified organizations can be deducted. You must have a receipt if the donation is over a certain amount.
- Medical and Dental Expenses: You can deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). This includes doctor visits, prescription medications, and other necessary medical services.
- State and Local Income Taxes: You can choose to deduct either state income taxes or sales taxes, but not both.
- Casualty and Theft Losses: If you’ve experienced significant losses due to federally declared disasters, you can deduct certain losses, subject to limits.
- Investment Interest: Interest paid on loans used to purchase taxable investments can also be deducted.
Take note that some of these deductions have limits. For example, charitable contributions may be limited to a percentage of your income, and certain deductions, like casualty and theft losses, only apply under specific circumstances.
Who benefits more from itemizing rather than taking the standard deduction?
Typically, people who experience significant deductible expenses, such as homeowners or those with large medical bills, benefit from itemizing rather than taking the standard deduction. Here are a few examples of who might benefit:
- Homeowners: Individuals with mortgage interest and property taxes may find that itemizing allows them to deduct a larger portion of their income, as these expenses can add up.
- High-Income Earners: People with high incomes might itemize to take advantage of deductions like state and local taxes (SALT), which, even with the current limit, could result in a higher deduction than the standard amount.
- Individuals with High Medical Expenses: If your medical bills exceed 7.5% of your AGI, you may benefit more from itemizing those expenses.
- Charitable Donors: People who donate significantly to charity may want to itemize to claim deductions for those donations.
After the Tax Cuts and Jobs Act (TCJA) doubled the Standard Deduction for most taxpayers, fewer people benefit from itemizing now than before 2018. However, people with substantial deductible expenses might still find itemizing to be more advantageous.
How do the Standard Deduction amounts differ based on filing status?
In 2024, the amount you can deduct from your income before taxes depends on your filing status. Here are the standard deduction amounts for the year:
- Single or Married Filing Separately: US$14,600
- Married Filing Jointly or Qualifying Widow(er): US$29,200
- Head of Household: US$21,900
If you’re 65 or older or legally blind, you get extra deductions:
- Single or Head of Household: Add US$1,950
- Married (filing jointly or separately): Add US$1,500 per person
These deductions reduce the income you owe taxes on, and you don’t need to keep receipts or proof like you would for itemizing deductions.
Can I switch between Standard and Itemized Deductions each year?
Yes, you can choose to switch between standard and itemized deductions each year. This flexibility allows you to decide which method saves you more on taxes based on your expenses that year.
Some important points to remember:
- You can switch every year, depending on what benefits you most.
- There’s no penalty for changing methods year to year.
- Review your finances each year to see if itemizing (listing individual deductions) will save you more than the standard deduction.
Switching between the two methods doesn’t cause any problems, but if you choose to itemize, make sure you keep records of all your deductions, as the IRS might ask for proof.
Can I deduct medical expenses even if I take the Standard Deduction?
No, if you take the standard deduction, you cannot also deduct medical expenses.
To deduct medical costs, you must choose to itemize your deductions instead of taking the standard deduction.
However, itemizing only makes sense if your total deductions—including medical costs—are more than the standard deduction for your filing status. For medical expenses, only the portion that exceeds 7.5% of your income can be deducted.
What happens if my itemized deductions are lower than the Standard Deduction?
If your itemized deductions are less than the standard deduction, it’s better to stick with the standard deduction.
The IRS lets you pick the option that reduces your taxable income the most. You don’t have to itemize your deductions just because you have some, especially if itemizing doesn’t give you a bigger deduction than the standard option.
Do I need receipts for Itemized Deductions?
Yes, you’ll need to keep receipts and records for the expenses you plan to itemize, like medical bills, mortgage interest, or charitable donations.
These receipts act as proof in case the IRS wants to verify your claims. It’s important to hold onto these records for at least three years after you file your taxes, just in case.
Can I use the Standard Deduction if I have mortgage interest?
Yes, you can still use the standard deduction even if you have mortgage interest. However, if your mortgage interest combined with other deductions (like medical expenses or donations) adds up to more than the standard deduction, it may make sense to itemize.
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