Doing your federal income taxes is never any fun, and no one would blame you if you wanted to make the process as simple as possible. But choosing the path of least resistance—taking the standard tax deduction instead of itemizing—could cost you money. While taking an itemized deduction may be a pain to calculate, it may be financially worth it.
Learn more about standard and itemized deductions to find out which is right for you and your situation.
What's the Difference Between Itemized and Standard Deductions?
|Standard Deductions||Itemized Deductions|
|Flat amount you can deduct from your taxable income||More specific amount you can deduct from your taxable income|
|Based on your filing status, dependents, and year||Based on more personal circumstances/expenses|
|Easier to calculate, but could mean you miss out on savings||More difficult to calculate, but could save you money|
Standard Deduction vs. Itemized Deductions
The standard deduction is exactly what it sounds like—a flat amount that you can deduct from your taxable income. The amount you can deduct is based on your filing status, number of dependents, and what year you’re filing the taxes for.
For the 2021 tax year, the standard deduction is valued at $12,550 for single taxpayers and married couples filing individually. It increases to $25,100 for married couples filing a joint return. Heads of household can claim a standard deduction worth $18,800.
When you itemize deductions instead, you have the ability to deduct the actual dollar amount of many different expenses. Some of these deductions come in the form of mortgage interest, property taxes, medical expenses, and student loan interest, to name a few.
Keep in mind that just because you own a home, it doesn't necessarily mean the mortgage tax deduction is better than the standard deduction. You still have to crunch the numbers.
If you totaled up all of your allowed deductions and the total you got was greater than the standard deduction, it would probably be wise to itemize.
When it comes to itemizing or taking the standard deduction, if you're married, you and your spouse both have to choose the same option—even if you file separate returns. If one of you has significantly higher deductible expenses than the other and they also have a higher income, then itemizing would likely be the better option.
What Expenses Can Be Itemized?
Numerous expenses can be included on your list of itemized deductions. Some of the most common expenses include:
- Mortgage interest
- Charitable contributions
- Property taxes
- State and local income taxes
- Gambling losses
- Student loan interest
- Medical expenses that exceed 7.5% of your adjusted gross income
Many eligible deductions changed as a result of the Tax Cuts and Jobs Act, beginning in tax year 2018. For example, the deduction for mortgage interest decreased, and deductions for things like moving expenses, job-hunting expenses, and unreimbursed employee expenses were eliminated, as will the deduction for alimony payments, tax preparation fees, and home office expenses. Home equity loan interest became nondeductible, along with deductions for casualty losses not covered by insurance.
Which Is Right for You?
Which is right for you ultimately depends on your situation.
Start by taking a look at Schedule A of IRS Form 1040. On this sheet, you can list your itemized expenses, and then total them up to compare the amount to the standard deduction. If the itemized amount is greater, then you would want to itemize. If the total itemized amount is less than the standard deduction, you would not want to itemize; take the standard deduction instead.
For some expenses, you have to itemize on Schedule A in order to claim the deduction. That includes things like mortgage interest and charitable deductions. Other expenses can qualify for an above-the-line deduction, meaning you don't need to itemize to claim them. Those include student loan interest and contributions to a traditional IRA.
The largest deductions for most people often come in the form of mortgage interest and property taxes. In these situations, even a modest mortgage could put you over the standard deduction limit. Since this can total into thousands of dollars over the standard deduction, the tax savings can be significant.
On the other hand, if you don't have a mortgage, or your expenses are more straightforward, it would likely make more sense to take the standard deduction.
The Bottom Line
Taking the standard deduction is certainly easier, and it might actually be a better option if you have a simple tax situation or you don’t own a home. But before you make the decision, you should crunch some numbers. If you determine that itemizing is right for you, it could lead to substantial savings.
Look at both sides of the standard vs. itemized coin, and consider which above-the-line deductions you're eligible for. This can help you decide which path to pursue when preparing your return.