The difference between the itemized deduction and the standard deduction is simple math. The standard deduction reduces your income by a certain amount. On the contrary, itemized deductions are made up of an index of allowable expenses. You may claim whatever reduces your tax liability the most. To learn more, seek the help of a CPA in Pembroke Pines, FL, today.
Standard deduction
When asked, “What is a standard deduction?” we think of two things. The standard deduction is a predetermined cash amount that reduces your taxable income. Your filing status determines your standard deduction. Next, you could be curious about the standard deduction amounts. They are as follows:
- $12,950 – for single or married filing separately.
- $19,400 – for the head of the household.
- $25,900 – for married and filing jointly or an eligible widow(er).
If you are blind or over 65, your standard deduction increases. It rises by $1,650 if you are single or the head of your family and by $1,300 if you are married or an eligible widow(er).
The vast majority of taxpayers claim the standard deduction. The standard deduction:
- Enables you to claim a tax deduction even if you do not have any expenses that qualify for itemized deductions.
- Removes the need to itemize deductions such as medical costs and charitable contributions.
- Allows you to avoid retaining expense records and receipts if the IRS audits you.
Itemized deduction
After defining standard deductions, one may ask, “What is an itemized deduction?” Itemized deductions lower your adjusted gross income (AGI) in the same way that standard deductions do but in a different way. Contrary to the standard deduction, the dollar amount of itemized deductions varies from person to person. While standard deductions are, as the name suggests, a predetermined amount, itemized deductions are calculated by combining all relevant deductions and then removing that amount from your taxable income.
State tax considerations
There is one instance in which you should itemize even if your total itemized deductions fall below your standard deduction. You might wish to do this if you would pay less tax overall if you combined your state and federal taxes. This can occur if you itemize your federal and state taxes and receive a bigger tax benefit than the standard deduction on your state and federal filings. It should be noted that some states, such as Michigan and Massachusetts, do not allow itemized deductions.
Talk to an expert today to learn about standard and itemized deductions and which option is best for you.
