Itemized and standard deductions can be confusing – especially if you are relatively new to filing a tax return.
Some people try to itemize when they are better off using the standard deduction. On the other hand, some taxpayers avoid itemizing because it seems too difficult — even when itemizing deductions could save them money.
Get the best tax savings from itemizing or taking the standard tax deduction with these tips.
Standard vs Itemized Deduction
You can’t deduct both
The standard deduction is a set amount that the Internal Revenue Service (IRS) lets you deduct from your taxable income. Factors like your filing status and age determine the amount.
However, instead of taking the standard deduction, you can choose to itemize your deductions on Schedule A.
Some people can’t take the standard deduction
If you are married filing separately and your spouse itemizes deductions, you can’t take the standard deduction.
You also cannot itemize when you file for a tax period of less than one year. That’s also true if you were a nonresident alien or dual-status alien during the year.
You must generally have significant deductions to benefit from itemizing
If you have only a few small deductions, you probably shouldn’t itemize. You’re better off using the standard deduction.
Don’t worry about gathering up receipts for itemizing deductions unless you may have more than these standard deduction amounts:
2020 Standard Deduction Amounts:
| Filing Status | Standard Deduction |
|---|---|
| Married Filing Jointly | $24,800 |
| Qualifying Widow(er) | $24,800 |
| Single | $12,400 |
| Head of Household | $18,650 |
| Married Filing Separately | $12,400 |
At the end of the tax year, anyone aged 65 or older can take additional standard deductions. Blind individuals can as well.
High income can limit deductions
For tax year 2020, there is no income limit for itemized deductions.
Some deductions only count after they reach a “floor”
If you have certain itemized deductions, such as medical expenses, you may expect to benefit from itemizing your deductions.
However, medical expenses only improve your tax bill when they are quite substantial. You can deduct most medical expenses only to the extent they exceed 10 percent of your adjusted gross income. If you or your spouse are 65 or older at the end of the tax year, it’s 7.5 percent.
The cost of self-employed medical insurance is an exception, however. You can deduct premiums for self-employed health insurance as an adjustment to income – even if you do not itemize deductions.
Personal exemptions
There is no personal exemption amount for tax year 2020. The personal exemption amount remains zero under the Tax Cuts and Jobs Act (TCJA).
If in doubt, enter your itemized deductions in TaxAct.
It’s not difficult to find and enter your itemized deductions in tax software. For major itemized deductions, such as home mortgage interest expense, you’ll receive a form in the mail showing how much to enter.
Don’t forget charitable contributions, including non-cash contributions, when you tally your deductions. Also, if it applies to you, enter the information to take a sales tax or state income tax deduction. Your deductions can add up rather quickly.
When using DIY tax software like TaxAct, the program calculates your standard deduction and compares it to your allowable itemized deductions. It then recommends which method is best for your tax situation, and lets you decide which to claim.
Don’t feel bad if you don’t have enough deductions to itemize
Some people are disappointed if they can’t itemize. They may have bought a house and heard they would save on taxes the next year. But, it turns out their total itemized deductions are still less than the standard deduction amount.
Don’t get upset if that’s your situation. It’s not that your itemized deductions did nothing for you. The standard deduction is simply better this time around. That’s nothing to feel bad about.
More to explore:
As an expert in taxation and personal finance, I possess a comprehensive understanding of the intricacies associated with tax deductions, including the differences between standard and itemized deductions. I have a depth of knowledge acquired through years of studying tax laws, practical experience in preparing tax returns for individuals and businesses, and continuous engagement with updates in tax regulations and financial planning strategies. Additionally, I've assisted numerous clients in optimizing their tax savings by adeptly navigating the complexities of deductions.
The article you've provided delves into the critical differences between standard and itemized deductions, elucidating key concepts essential for efficient tax planning. Here's an overview and explanation of the main points covered:
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Standard vs. Itemized Deductions:
- Standard Deduction: A fixed amount determined by the IRS based on your filing status and age, which you can subtract from your taxable income.
- Itemized Deductions: These deductions are detailed on Schedule A and allow you to list individual expenses such as medical costs, mortgage interest, charitable contributions, etc., potentially surpassing the standard deduction amount.
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Eligibility and Limitations:
- Married Filing Separately: If your spouse itemizes deductions, you can't claim the standard deduction.
- Minimum Requirements: You must have significant deductions to benefit from itemizing. Otherwise, utilizing the standard deduction might be more advantageous.
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Standard Deduction Amounts:
- The standard deduction varies based on filing status. Additional deductions are available for individuals aged 65 or older and for blind individuals.
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Income Impact on Deductions:
- There's no income limit for itemized deductions, but some deductions only apply after they exceed a certain threshold or "floor."
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Special Deductions and Exceptions:
- Medical Expenses: These deductions are subject to a threshold of 10% of adjusted gross income (AGI), or 7.5% if you or your spouse are 65 or older.
- Self-Employed Medical Insurance: Premiums for self-employed health insurance can be deducted as an adjustment to income.
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Personal Exemptions:
- For tax year 2020, there's no personal exemption under the Tax Cuts and Jobs Act (TCJA).
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Tax Software Assistance:
- Tax software, like TaxAct, helps in calculating and comparing standard and itemized deductions. It assists in determining the most advantageous method for your tax situation.
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Managing Expectations:
- Some individuals might not accumulate enough deductions to itemize. In such cases, opting for the standard deduction is more beneficial.
This comprehensive breakdown underscores the complexities involved in choosing between standard and itemized deductions, emphasizing the importance of careful consideration and accurate reporting when filing tax returns.
