Standard Deduction vs Itemized Deduction—What’s the Difference?
Understanding the difference between the standard deduction and itemized deduction is really fairly simple. Understanding the implications of the difference— how they might matter to your bottom line—is incredibly important. If you use the standard deduction, you will simply lower your income by one fixed amount when you file your taxes. On the other hand, if you use itemized deductions, you will provide a list of eligible expenses that you’ve kept track of all year. To minimize your tax bill and keep more of your income, you should use the deduction strategy that lowers your tax bill the most.
What is a standard deduction?
The standard deduction is a fixed dollar amount—set by the IRS—that reduces your gross income for tax purposes. In any given tax year, your filing status will determine your standard deduction amount. The IRS often updates the standard deduction from year to year to account for inflation, so it’s important to make sure you are using current numbers. Your standard deduction varies according to your filing status. For the 2022 tax year, the standard deductions are as follows:
- For single or married filing separately — $12,950
- For head of household — $19,400
- For married filing jointly or qualifying widow(er) — $25,900
You get an additional bump in your standard deduction amount if you are blind or age 65 or older. If you fit into either of those categories, your additional deduction for 2022 will be $1400 if you are married (filing jointly or separately) and $1750 if you are filing as single or head of the household.
The standard deduction has many advantages for most taxpayers:
- The standard deduction allows you to take a tax deduction even if you don’t have any expenses that qualify for itemized deductions.
- Taking the standard deduction means you can save time and confusion on your taxes because you are not required to list individual expenses.
- The standard deduction allows you to avoid time consuming record keeping. If you choose the itemized deduction, you will need to keep receipts and records in case you’re audited by the IRS.
What is an itemized deduction?
Unlike the standard deduction, itemized deductions are specific expenses that the IRS allows you to list for the purposes of reducing your taxable income. While the standard deduction amount is the same for each taxpayer within a given category, itemized deductions vary for all taxpayers. The IRS dictates what expenses are allowable when it comes to itemized deductions.
What expenses are allowable as itemized deductions?
Unreimbursed medical and dental expenses
If you incur qualified out-of-pocket medical and/or dental expenses that are not covered by insurance, you can deduct any expenses that exceed 7.5% of your adjusted gross income (AGI). Example: If you make $100,000 in adjusted gross income this year, and you have medical expenses in the amount of $20,000, you will be able to deduct $12,500 of those expenses ($100,000 x 7.5% = $7,500, $20,000 – $7,500 = $12,500).
Long-term care premiums
Long-term care premiums are also calculated as a percentage of your AGI when determining deductible amounts. Specifically, long-term care insurance premiums are tax-deductible to the extent that the premiums exceed 10% of your AGI. There are limitations to this based on taxpayer age and qualification status of the insurance.
Home mortgage and home-equity loan (or line of credit) interest
If you take out a loan to purchase your home (a mortgage), the interest you pay is deductible on the first $750,000 in loans. Your mortgage lender will mail you Form 1098 each year, which details the exact amount of deductible interest and fees that you’ve paid over the past year.
Home-equity loan or line of credit interest
If you have built up equity in your home over time and borrow against that equity, that’s called a home-equity loan or home-equity line of credit. Interest from either of those loan types is deductible provided that the money you borrow is used to buy, build, or substantially improve the home that secures the loan.
If you itemize your deductions, you can included two types of tax payments on your Schedule A:
- Personal Property Taxes
- State and Local Taxes Assessed for the Previous Year
It’s important to know that if you receive a refund from the state in the previous year, you must count that refund as income if you itemize deductions. Tax payment deductions are subject to limits, and cannot be used if you prepaid your state or local income tax for next year.
If you make donations to a qualified charity, you can deduct that amount (within certain limits). For cash contributions made between 2018 and 2025, the deductible amount is limited to no more than 60% of the taxpayer’s AGI. You can carry over excess amounts to the next year. Other non-cash contributions also have deductibility limits, depending on the type of property you’re donating and the type of organization receiving your donation.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, created a new deduction of up to $300 for charitable donations and relaxes limits on other charitable deductions, including cash and food donations. This was done to increase charitable giving during the COVID-19 pandemic, and the new rules apply to individuals and corporations.
Casualty and theft losses
If you experience a casualty or theft loss as a result of a federally declared disaster, you can deduct those losses that are in excess of 10% of the your AGI (you must lso first subtract $100 from the loss amount). If you use the loss as a deduction in one year, and later receive a reimbursement for any of those expenses, you must declare that amount as income on that year’s tax return. To deduct casualty and theft losses, you must complete Form 4864 and report the loss on Schedule A.1
Unreimbursed job-related expenses and certain miscellaneous deductions
Although the rules around deducting job-related expenses were more lenient in the past, current IRS rules state that you must fall into one of four categories to be able to claim job-related expenses:
- Armed forces reservist
- Qualified performing artist
- State or local government official working on a fee basis
- Employee with impairment-related work expenses
If you fall into one of these categories and wish to claim expenses, you must complete Form 2106.
In addition to the categories above, eligible educators may deduct up to $250 in unreimbursed expenses by completing Schedule 1.
Other Miscellaneous Deductions
Other miscellaneous expense that may be deductible include things like gambling losses (to the extent of gambling winnings), losses from partnerships or S corps, some types of estate taxes, and certain other expenses. For additional details about miscellaneous deductible expenses, you can review IRS Publication 5307 Tax Reform Basics for Individuals and Families or reach out for a free consultation with a Prime tax advisor.
Should you itemize or take the standard deduction?
Deciding whether to itemize or take the standard deduction often comes down to one primary decision: if your itemized deductions add up to an amount that is higher than the standard deduction amount, it usually makes sense to itemize. Some specific considerations that may lead you to itemize include:
- If you have itemized deductions that total more than the standard deduction you would receive
- If you paid mortgage interest and real estate taxes on your home
- If you have large, out-of-pocket medical and dental expenses
- If you had large, uninsured casualty (fire, flood, wind) or theft losses
- If you made large donations to qualified charities
- If you have gambling losses
Standard deduction vs. itemized deductions – state tax considerations
There’s one situation where you may want to itemize deductions even if your total itemized deductions are less than your standard deduction. You might want to do this if you’d pay less tax overall between your federal and state taxes. This can happen if you itemize on your federal and state returns and get a larger tax benefit than you would if you claimed the standard deduction on your federal and state returns. Note that some states don’t allow itemized deductions, such as Michigan or Massachusetts.
Itemized vs. standard deductions – FAQ
If you’ve got more questions, take a look at our frequently asked questions, review our Prime resource library for more tax info, or set up a consultation with a Prime tax advisor. We’re always here to help you get your taxes done right, because it’s not what you make, it’s how much you keep!
Can I take the standard deduction and itemize deductions?
No, you must choose one type of deduction strategy. If you take the standard deduction, you cannot list itemized deductions on Schedule A.
Can I deduct child care expenses?
This is a tricky question. The IRS does allow you to recapture some of your child care expenses at tax time, but it is done through a credit rather than through deductions. We’ll cover the specifics of child care expenses in a later post, so stay tuned for that!
Can I deduct travel expenses that I incurred for work?
No, for tax years after 2018, employees can no longer deduct any portion of their non-reimbursed work travel expenses.