Is it better to itemize or take standard deduction? Learn what's better when filing taxes (2024)

When it comes to taxes, it’s much easier to take the standard deduction and get your return done quickly. But sometimes a little extra effort to itemize deductions could be worth it to lower your tax bill or boost your refund.

Deductions reduce the amount of your taxable income.So generally, the more you have, the lower your taxes.

A standard deductionreduces your taxable income by a set amount, depending on your income, age, filing status and other factors, whereas with itemized deductions, you can pick and choose from among hundreds if you qualify.

In the tax year 2020, 87.3% of Americans took the standard deduction, just shy of the 87.6% who did in 2019, IRS data shows. It’s unknown how many of those people could have fared better itemizing their deductions, but it is likely “some of those who took the easy way out probably shortchanged themselves,” according to Intuit TurboTax.

Are you ready for tax season?Everything you need to know to file in 2023.

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When should you itemize?

The IRS says you should itemize deductionsiftheir total tops your standard deduction, or if you must itemize deductions because you can't use the standard deduction.

Hints as to whether you may benefit from itemizing, without doingdetailed calculations, could lie in whether youowned a home, had significant medical expenses, or made sizable donations.

  • If you owned a home and your mortgage interest, points, and mortgage insurance premiumsexceedyour standard deduction, there's a good chance you would benefit from itemizing, Intuit TurboTax said. If you have a $300,000 mortgage at 4% interest, that’s already $12,000 of interest you can deduct.
  • Unreimbursed, qualified medical expenses that exceed 7.5% of your adjusted gross income can be deductible if you itemize. For example, if your adjusted gross income is $50,000, expenses above $3,750 for the year are deductible.Ifyour bills totaled $10,000, you could deduct $6,250 of qualified medical expenses, which include abortion, ambulances, contact lenses, chiropractor, crutches, eye exams, glasses, prescription drugs, hearing aids, home care, fertility treatments, lab fees, and long-term care.
  • Charitable contributions can only be deducted if they're itemized. If you made many donations throughout the year, they could add up to thousands of dollars, making itemizing more beneficial.
Is it better to itemize or take standard deduction? Learn what's better when filing taxes (1)

Once I’ve decided to itemize, what can I deduct or take a credit for?

Some of the most overlookeditemized items include:

  • State and local sales tax: you can deduct either state and local income taxes or up to $10,000 ($5,000 if married filing separately) in state and local sales tax, whichever is larger. Usually, income tax is larger but in states without income tax, the decision is easier. You can either add up sales tax from your receipts for the year or use the IRS calculatorto figure out what you can deduct.
  • Child and dependent care credit: if you pay for someone to watch your kid 12 years and under, or a spouse or another dependent so you can work, you may be eligible for a credit of up to $3,000 for one person, or $6,000 for two or more people.

Note:Credits are more valuable than a deduction for lowering your tax bill because they are a dollar-for-dollar reduction in your bill. For example, a $1,000 credit cuts your bill by $1,000. A $1,000 deduction reduces your taxable income and may result in savings of a couple of hundred dollars.

  • Other Dependent Credit: a credit of up to $500 for any-age dependents who don't qualify for the child tax credit.
  • Gambling losses: If you keep a record of your winnings and losses, you can deduct your losses as long as they’re not more than your winnings. Losses and winnings can come from activities such as lottery tickets, slot machines, and racing events.

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Are there deductions I can takeif I take the standard deduction?

Yes. Even if you don’t itemize, some overlooked deductions you can take include:

  • Earned income tax credit: About 20% of Americans qualify but miss taking this credit, which on average returned $2,043 per claimant. If youearned $53,057 ($59,187 married filing jointly), you may be eligible whether you have children or not. If you don’t owe any tax, you can get it refunded to you.
  • Child tax credit: if you have a dependent under 17 years old and earn less than $200,000 ($400,000 if filing a joint return), you may qualify for a $2,000 credit per child. The credit begins to phase out above those income limits.
  • Student loan interest: the lesser of the interest you paid during the year ona student loan or $2,500 is deductible and is phased out as your income grows. You can’t claimany deduction if yourmodified adjusted gross income is $85,000 or more ($175,000 or more if you file a joint return).
  • American opportunity tax credit: A maximum annual credit of $2,500 per eligible student for the first four years of higher education. If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you. To claim the full credit, your modified adjusted gross income must be $80,000 or less ($160,000 or less for married filing jointly). It phases out after those income thresholds and is gone after over $90,000 ($180,000 for joint filers).
  • Alimony: You can deduct from your income alimony payments if your divorce was finalized before 2018 and is unmodified.
  • Jury duty pay: if your employer took your jury duty pay because it continued to pay you while you served, you can deduct the jury duty amount as an adjustment to your income.
  • Time deposit penalties: Any fees you had to pay for early withdrawal from a time deposit account, like a certificate of deposit, are deductible.

Saving to cut taxes:What's an FSA, HSA, 529? How they work and how to use them to cut taxes, build wealth.

Hold on:How long should you wait before filing taxes? Surprise! Later can sometimes be better

More of your 2022 tax season questions answered

  • Tax season 2023 officially started: Here are key deadlines to keep in mind
  • 1099, W-4, W-2, W-9, 1040: What are these forms used for when filing your taxes?
  • What are the 2022 US federal tax brackets? What are the new 2023 tax brackets? Answers here
  • 2023 tax season guide for new parents: What to know about the Child Tax Credit, EITC and more
  • IRS may owe you from 2020 taxes. Here's why and what you need to do to find out if you're owed
  • What is OASDI tax on my paycheck? Here's why you and your employer pay this federal tax
  • Do you have to report crypto on taxes? Yes. Here's what you should know about form 8949
  • What is a 1098-E form? What you need to know about the student loan interest statement
  • Tax season 2023: What exactly is the mileage rate? There's more than one.
  • Is it better to pay someone to do your taxes or do them yourself? We'll help you decide.
  • What is income tax? What to know about how it works, different types and more
  • Is Social Security income taxable by the IRS? Here's what you might owe on your benefits
  • Companies can deduct full cost of business meals on 2022 tax returns
  • Who has to file a tax return: It's not necessary for everyone. Here are the rules.
  • What is capital gains tax in simple terms? A guide to 2023 rates, long-term vs. short-term
  • Best way to receive your 2023 tax refund? IRS says direct deposit. Here's how to do it.
  • What is FICA? How much you contribute to federal payroll taxes.
  • How much is the Child Tax Credit for 2023? Here's what you need to know about qualifying.
  • A 30% national sales tax? Abolishing the IRS? What the FairTax Act of 2023 would do.
  • The Inflation Reduction Act carves out an EV tax credit for 2023. Does Tesla qualify?

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.comand subscribe to our freeDaily Money newsletterfor personal finance tips and business news every Monday through Friday morning.

Is it better to itemize or take standard deduction? Learn what's better when filing taxes (2024)

FAQs

Is it better to itemize or take standard deduction? Learn what's better when filing taxes? ›

Taking the standard deduction might be easier, but if your total itemized deductions are greater than the standard deduction available for your filing status, saving receipts and tallying those expenses can result in a lower tax bill.

Is it better to do a standard deduction or itemize? ›

You should itemize deductions on Schedule A (Form 1040), Itemized Deductions if the total amount of your allowable itemized deductions is greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction.

What is one disadvantage of itemizing your deductions? ›

Unlike standard deductions, itemizing is a manual process that requires gathering documentation and tallying expenses. Depending on how good your records are and the amount of your deductions, this time-consuming process might not reduce your taxable income enough to make it worth the effort.

Does itemizing reduce taxable income? ›

Itemized deductions lower your taxable income, which usually means they allow you to pay less taxes. But that depends on your tax bracket.

What can you itemize if you don't take standard deduction? ›

If you itemize, you can deduct these expenses:
  • Bad debts.
  • Canceled debt on home.
  • Capital losses.
  • Donations to charity.
  • Gains from sale of your home.
  • Gambling losses.
  • Home mortgage interest.
  • Income, sales, real estate and personal property taxes.

How can you maximize your tax refund? ›

4 ways to increase your tax refund come tax time
  1. Consider your filing status. Believe it or not, your filing status can significantly impact your tax liability. ...
  2. Explore tax credits. Tax credits are a valuable source of tax savings. ...
  3. Make use of tax deductions. ...
  4. Take year-end tax moves.

Is it worth it to itemize medical expenses? ›

If your standard deduction ends up being less than your itemized deductions, you may want to itemize to save money. On the other hand, if your standard deduction is more than your itemized deductions, taking the standard deduction will save you some time.

What is the 2 rule on itemized deductions? ›

You can claim part of your total job expenses and certain miscellaneous expenses. These expenses must be more than 2% of your adjusted gross income (AGI).

Is it worth itemizing deductions anymore? ›

Advantages of itemized deductions

If you own your home and pay substantial amounts in interest expense and property taxes, itemizing could benefit you. Similarly, if you have large, unreimbursed medical expenses—or contribute a significant amount to charity in a certain year—it may be a good move to itemize.

Do itemized deductions increase refund? ›

Tax credits, tax deductions, and itemized income tax returns are ways you may be able to reduce your taxable income or increase your income tax refund.

What can I deduct to lower my taxes? ›

The IRS lets you take either the standard deduction or itemize. There are dozens of itemized deductions available to taxpayers, and all of them have different rules. Examples of itemized deductions include deductions for unreimbursed medical expenses, charitable donations, and mortgage interest.

Can you deduct medical expenses without itemizing? ›

Key Takeaways

The IRS allows all taxpayers to deduct their qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income. You must itemize your deductions on IRS Schedule A in order to deduct your medical expenses instead of taking the standard deduction.

Are health insurance premiums tax deductible? ›

If you paid the premiums for a policy you obtained yourself, your health insurance premium is deductible when they are out-of-pocket costs. If your insurance is through your employer, you can only deduct these: Amounts you paid with after-tax funds.

What if standard deduction is more than income? ›

If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund. You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year.

Is there an income limit for itemized deductions? ›

Is there a Limit on Total Itemized Deductions? There is no limit on itemized deductions for Tax Years 2018 through 2025, there is only certain limits per deduction based on your AGI as outlined in each section above.

Are tax deductions worth it? ›

Tax deductions are a good thing because they lower your taxable income, which also reduces your tax bill in the process.

When should you itemize instead of claiming the standard deduction quizlet? ›

You should itemize when your expenses are more than the standard deduction. When must you file your federal income tax return? Why? April 15 of the year after you earned income because if you file late, you'll have to pay penalties and interest charges.

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