Standard Deduction vs. Itemized Deduction: Which One Should I Choose?
You can either claim the standard deduction or the itemized deduction, but there's no way you can do both. Itemized deductions are deductions that taxpayers can calculate on their own using the various deductions the IRS offers whereas the standard deduction is a set number the IRS publishes every year. When you compare the two methods, it'll make it easier for you to understand and choose which option provides you with the greatest tax benefit.
Is Standard Deduction For Me?
The standard deduction refers to the amount that's been determined by the IRS that you're allowed to deduct from your AGI. It lowers your tax liability by lowering your taxable income. It can be a quick and straightforward alternative to an itemized deduction because it doesn't involve extra paperwork.
The standard deduction amount you're entitled to really depends on your filing status as well. People older than 65 and those who are blind are entitled to an additional deduction of $1,700 on top of the standard deduction.
Here are certain factors that prohibit taxpayers from getting the standard deduction:
A married individual filing as married filing separately whose spouse itemizes deductions.
An individual who files a tax return for a period of fewer than 12 months because of a change in his or her annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. (However, nonresident aliens who are married to a U.S. citizen or resident alien at the end of the year and who choose to be treated as U.S. residents for tax purposes can take the standard deduction.)
An estate or trust, common trust fund, or partnership
Here are the standard deduction amounts for 2022.
$12,950 for single taxpayers or married couples filing separate tax returns
$19,400 for people filing as head of household
$25,100 for married couples filing jointly
Should I Choose Itemized Deduction?
To itemize, it's a good habit to keep track of what you spend on deductible costs like out-of-pocket medical expenses and charitable donations throughout the year. Receipts, bank statements, medical bills, acknowledgment letters from charitable organizations, tax records detailing the mortgage interest, real estate taxes, and state income taxes you paid during the year must all be kept on file.
Then you must determine whether your itemized deductions exceed the standard deduction of your filing status. It may sound like a lot of work but at the end of the day if your itemized deduction is greater than the standard deduction, then that's your best shot at lowering your taxable income.
Brief Overview Of Standard Deduction vs. Itemized Deduction
The standard deduction is the flat amount you can deduct from your taxable income and also based on your filing statuses, dependents, and the year. The standard deduction is overall very easy to calculate because of the fixed amount depending on the year, but also a downfall because you may be missing out on savings.
With the itemized deductions, there's a more specific amount that you can deduct from your taxable income and also based more on your own circumstances, expenses, and tax situations. Even if it may be a little more difficult and extensive, the itemized deduction may save you money.
Resolve Your Tax Bills
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