The standard deduction and itemized deduction are two different ways to declare your tax deductions. The standard deduction is a flat amount that is automatically given to taxpayers, while the itemized deduction requires you to list out each of your eligible deductions. In many cases, the standard deduction will be more beneficial than itemizing, but there are certain circumstances when it makes more sense to itemize. Here’s a closer look at the difference between these two types of deductions.
What is Itemized Deduction?
Itemized deduction is a term used in the United States to refer to certain deductions that a taxpayer can take on their tax return. Itemized deductions are claimed in lieu of taking the standard deduction and can be used to reduce a taxpayer’s taxable income. Itemized deductions include expenses such as medical expenses, charitable donations, and mortgage interest. In order to claim an itemized deduction, a taxpayer must keep detailed records of their expenses and submit these records to the IRS. Itemized deductions can save a taxpayer money on their taxes, but they require more effort to claim than the standard deduction.
What is Standard Deduction?
A standard deduction is a reduction in the amount of income that is subject to taxation. The exact amount of the deduction varies depending on filing status, but it is generally designed to help taxpayers with modest incomes.
For example, for the 2019 tax year, the standard deduction for a single filer is $12,200. This means that any income earned below that amount is not subject to taxation. The standard deduction is one of several deductions that taxpayers can claim, and it can often result in a significant reduction in the amount of taxes owed.
However, it is important to note that taxpayers who itemize their deductions may not be eligible for the standard deduction. As a result, it is important to calculate both options in order to determine which provides the greatest benefit.
Difference between Itemized Deduction and Standard Deduction
Itemized deductions are deductions for specific expenses that the taxpayer chooses to deduct, while standard deduction is a set amount that lowers the amount of income on which taxes are calculated. Itemized deductions include medical expenses, state and local taxes, mortgage interest, charitable contribution,s and more. The Tax Cuts and Jobs Act nearly doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. The new law also limits or repeals several itemized deductions, including the deduction for state and local taxes. As a result, fewer people are expected to itemize their deductions going forward.
Conclusion
The standard deduction is a set amount that is automatically given to taxpayers without having to itemize their deductions. This amount changes each year and is based on the taxpayer’s filing status. The itemized deduction, on the other hand, is the total of all allowable deductions that a taxpayer takes on Schedule A of their tax return. These include things like mortgage interest, charitable donations, and state and local taxes.
Which type of deduction will provide you with the biggest tax break? It really depends on your individual circumstances. If you have a lot of expenses that can be classified as itemized deductions, then it may make sense for you to take this route. However, if you don’t have many qualifying expenses or your total expenses are lower than the standard deduction amount, then taking the standard deduction may be more beneficial for you.
