Which is better for your taxes? Standard deduction or itemized deduction?

Image Credits: UnsplashImage Credits: Unsplash
  • The choice between standard and itemized deductions depends on your individual financial situation. The standard deduction offers simplicity and a guaranteed amount, while itemizing can potentially lead to greater tax savings if your qualifying expenses exceed the standard deduction threshold.
  • Recent tax law changes have increased the standard deduction, making it more attractive for many taxpayers. However, homeowners, high-income earners, and those with significant charitable contributions or medical expenses may still benefit from itemizing.
  • To determine the best option, calculate your potential itemized deductions and compare them to the standard deduction amount for your filing status. Consider factors such as homeownership, state and local taxes, charitable giving, and medical expenses when making your decision.

[UNITED STATES] When it comes to filing your taxes, one of the most important decisions you'll make is whether to take the standard deduction or itemize your deductions. This choice can have a significant impact on your tax liability and potential refund. Let's explore the pros and cons of each option to help you determine which approach is best for your unique financial situation.

Before diving into the specifics of standard vs. itemized deductions, it's important to understand what tax deductions are and how they work. Tax deductions reduce your taxable income, which in turn lowers the amount of tax you owe. The more deductions you can claim, the less taxable income you'll have.

As Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Service, explains:

"Tax deductions are a dollar-for-dollar reduction of your taxable income. The more deductions you have, the lower your taxable income will be, which means you'll pay less in taxes."

What is the Standard Deduction?

The standard deduction is a fixed dollar amount that reduces your taxable income. It's a no-questions-asked reduction to your income that requires no documentation or receipts. The amount of the standard deduction depends on your filing status and is adjusted annually for inflation.

For the 2023 tax year (for taxes filed in 2024), the standard deduction amounts are:

  • $13,850 for single filers and married individuals filing separately
  • $27,700 for married couples filing jointly
  • $20,800 for heads of household

These amounts increase slightly for the 2024 tax year:

  • $14,600 for single filers and married individuals filing separately
  • $29,200 for married couples filing jointly
  • $21,900 for heads of household

The standard deduction offers simplicity and convenience. You don't need to keep track of expenses throughout the year or gather receipts at tax time. For many taxpayers, especially those with relatively straightforward financial situations, the standard deduction provides an easy way to reduce taxable income.

What are Itemized Deductions?

Itemized deductions allow you to deduct specific qualifying expenses from your taxable income. Common itemized deductions include:

  • Mortgage interest
  • State and local taxes (SALT), up to $10,000
  • Charitable contributions
  • Medical expenses exceeding 7.5% of your adjusted gross income
  • Unreimbursed job expenses for certain professions

Itemizing requires more effort, as you'll need to keep careful records of your expenses throughout the year and complete Schedule A of Form 1040 when filing your taxes. However, if your total itemized deductions exceed the standard deduction amount, itemizing could result in greater tax savings.

Pros and Cons of the Standard Deduction

Pros:

Simplicity and convenience

No need to keep detailed records or receipts

Guaranteed deduction amount regardless of actual expenses

May be beneficial for those with few deductible expenses

Cons:

May result in a higher tax liability if your itemized deductions would exceed the standard amount

Doesn't allow you to deduct specific expenses that might be significant for your financial situation

Pros and Cons of Itemized Deductions

Pros:

Potential for greater tax savings if your deductible expenses exceed the standard deduction

Ability to deduct specific expenses that are important to your financial situation

May be particularly beneficial for homeowners, those with high medical expenses, or generous charitable donors

Cons:

Requires detailed record-keeping and documentation

More complex tax filing process

May not be worth the effort if your itemized deductions only slightly exceed the standard deduction

Factors to Consider When Choosing Between Standard and Itemized Deductions

Homeownership: If you own a home, your mortgage interest and property taxes may push your itemized deductions above the standard deduction threshold.

State and local taxes: The deduction for state and local taxes (including income, sales, and property taxes) is capped at $10,000. If you live in a high-tax state, this could be a significant factor.

Charitable contributions: If you make substantial charitable donations, itemizing may allow you to deduct these contributions.

Medical expenses: If you had significant out-of-pocket medical expenses exceeding 7.5% of your adjusted gross income, itemizing could be beneficial.

Changes in personal circumstances: Major life events like getting married, buying a home, or experiencing a significant medical event can impact whether itemizing is more advantageous.

How to Determine Which Option is Better for You

To decide whether to take the standard deduction or itemize, follow these steps:

Calculate your potential itemized deductions by adding up all qualifying expenses.

Compare this total to the standard deduction amount for your filing status.

Choose the option that results in the larger deduction.

Remember, you're allowed to choose whichever method results in the lower tax liability. As Lisa Greene-Lewis, CPA and tax expert at TurboTax, advises:

"You should always prepare your taxes both ways – taking the standard deduction and itemizing your deductions – to see which gives you the bigger tax benefit."

The Impact of Recent Tax Law Changes

The Tax Cuts and Jobs Act of 2017 significantly increased the standard deduction amounts while eliminating or limiting several itemized deductions. This change has led to fewer taxpayers itemizing their deductions.

According to the Tax Foundation, the percentage of taxpayers who itemize dropped from about 31% in 2017 to just over 11% in 2019. However, this doesn't mean itemizing is no longer beneficial for everyone. High-income earners, homeowners in areas with high property taxes, and those with substantial charitable contributions may still find itemizing more advantageous.

Special Considerations for 2023 and Beyond

As you consider whether to take the standard deduction or itemize for the 2023 tax year and beyond, keep these points in mind:

Inflation adjustments: The standard deduction amounts are adjusted annually for inflation, so be sure to check the most current figures.

State tax implications: Some states require you to use the same method (standard or itemized) on your state return as you do on your federal return. Consider the impact on both your federal and state taxes when making your decision.

Future tax planning: If you're close to the threshold where itemizing becomes beneficial, consider strategies like bunching deductions (grouping deductible expenses into a single tax year) to maximize your tax savings over time.

Charitable giving strategies: If charitable donations are a significant part of your potential itemized deductions, explore options like donor-advised funds or qualified charitable distributions from IRAs to optimize your tax situation.

Deciding between the standard deduction and itemized deductions is a crucial step in optimizing your tax situation. While the increased standard deduction has made itemizing less common, it's still important to carefully evaluate your options each tax year.

For many taxpayers, the simplicity and convenience of the standard deduction will be the best choice. However, if you have significant deductible expenses – particularly related to homeownership, state and local taxes, charitable giving, or medical costs – itemizing could result in substantial tax savings.

Remember, your tax situation can change from year to year, so it's wise to reassess your deduction strategy annually. When in doubt, consult with a tax professional who can provide personalized advice based on your specific financial circumstances.

By taking the time to understand your options and choose the most beneficial deduction method, you can ensure you're minimizing your tax liability and maximizing your potential refund.


Tax United States
Image Credits: Unsplash
TaxJuly 10, 2025 at 11:30:00 AM

CFPB budget cut 2025: What happens when the watchdog loses its bite

So here’s the situation: buried inside a massive tax-and-spending bill that Donald Trump signed on July 4, 2025, is a quiet move that...

Tax Malaysia
Image Credits: Unsplash
TaxJuly 9, 2025 at 8:00:00 PM

Malaysia tax base reform: What it means for welfare and the middle class

Malaysia has long walked a tightrope between fiscal prudence and social equity. With tax revenues stuck at around 12% of GDP—among the lowest...

Tax United States
Image Credits: Unsplash
TaxJuly 9, 2025 at 1:30:00 PM

Here’s how Trump’s new endowment tax could impact your college tuition

The latest US tax-and-spending package signed by President Donald Trump doesn’t just touch corporate and individual tax policy—it also marks a significant shift...

Tax United States
Image Credits: Unsplash
TaxJuly 8, 2025 at 1:30:00 PM

Why it’s time to close the litigation funder tax loophole

There’s a multibillion-dollar hustle hiding in the legal system—and no, it’s not just ambulance chasers or billable-hour lawyers. It’s litigation funding, the financial...

Tax
Image Credits: Unsplash
TaxJuly 8, 2025 at 1:00:00 PM

New Social Security bonus and SALT deduction rules take effect

In the second half of 2025, the US government introduced two policy changes that don’t make front-page headlines—but should absolutely be on your...

Tax United States
Image Credits: Unsplash
TaxJuly 8, 2025 at 12:30:00 AM

Trump’s no-tax-on-tips plan sounds good—until you read the fine print

In June 2024, former President Donald Trump made a direct appeal to America’s service workers: under his future administration, tipped income would no...

Tax United States
Image Credits: Unsplash
TaxJuly 5, 2025 at 3:00:00 PM

Why new Trump tax deductions may offer little relief for low-income workers

When politicians talk about tax cuts, it often sounds like good news for everyone. But in reality, not all tax relief lands the...

Tax United States
Image Credits: Unsplash
TaxJuly 4, 2025 at 3:30:00 PM

Social Security trust fund insolvency: Will Congress fix it in time?

Social Security is the cornerstone of retirement planning for most Americans. Yet the latest trustee report warns that its primary funding source—the Old-Age...

Tax United States
Image Credits: Unsplash
TaxJuly 4, 2025 at 11:00:00 AM

How to avoid tax torpedoes in retirement

Retirement is supposed to be a time of financial ease, not surprise tax bills. Yet many retirees—especially those who’ve diligently saved—find themselves hit...

Tax United States
Image Credits: Unsplash
TaxJuly 3, 2025 at 11:00:00 AM

Why Trump’s tax deductions for tips, car loans, and overtime may offer little value to low-income earners

For working Americans hoping for meaningful tax relief, the Senate’s approval of Trump’s 2025 tax package might sound like good news. After all,...

Tax United States
Image Credits: Unsplash
TaxJuly 3, 2025 at 2:00:00 AM

Why Congress is advancing a “meh” tax bill—and why it still matters

This year’s most underwhelming piece of legislation might also be one of its most consequential. The Senate recently passed a modest tax bill...

Tax United States
Image Credits: Unsplash
TaxJuly 2, 2025 at 6:00:00 PM

Child tax credit changes: Bigger benefits, but will your family qualify?

The child tax credit (CTC) is one of the largest federal tax breaks for families in the U.S., designed to ease the financial...

Load More