Standard Deduction vs. Itemized Deductions: Which Is Best?
Standard deductions are more common, but know what's best for you
Think of tax deductions as little (and sometimes not so little) gifts from the Internal Revenue Service. Their value is subtracted from your taxable income, then your tax is calculated on what's left. Look at it this way: If you claimed $15,000 worth of deductions for the tax year 2018, reducing your taxable income from $80,000 to $65,000, you would have saved yourself $3,300. That's based on a 22% tax rate, which is how you would have been if filing as single or as head of household.
The IRS gives you a few options for deductions. You can claim the standard deduction for your filing status, or you can itemize your deductions, but you can't do both. Then there are "above the line" deductions, and you can take these in addition to the standard or itemized deductions.
The Standard Deduction
The amount of the standard deduction you’re entitled to depend on your filing status. For the tax year 2019, the deduction amounts are $12,200 for single taxpayers and married taxpayers who file separate returns, $24,400 for married taxpayers filing a joint return or for qualifying widow(er)s, and $18,350 for those who qualify as head of household.
These figures are up slightly from those in effect for the 2018 tax year (returns filed in April 2019) because standard deductions are indexed for inflation. They creep up incrementally year by year to keep pace with the economy. In 2018, standard deductions were $12,000 for single taxpayers and married taxpayers filing separate returns, $24,000 for married taxpayers filing jointly and qualifying widow(er)s, and $18,000 for heads of household.
Special Rules for Dependents, the Elderly, and the Blind
People older than 65 and those who are legally blind are entitled to an additional deduction on top of their standard deduction. These additional amounts for the tax year 2018 were:
- $1,600 if filing as single or head of household
- $1,300 if married and either you or your spouse are blind or older than 65
- $2,600 if married and both you and your spouse are either blind or older than 65
These numbers don't apply if someone else can claim you as a dependent. In that case, your standard deduction was the larger of $1,050 or your earned income plus $350 in the 2018 tax year. It could not exceed the 2018 standard deduction of $12,000 for a single filer.
Itemized deductions allow you to convert otherwise taxable income into nontaxable income if you spend money on certain tax-privileged items. If you choose to itemize, tally up your various deductions item by item on Schedule A, then enter the total on your 1040 return and file Schedule A with your tax return.
Some of the more common itemized deductions available in 2018 included:
- Medical, dental, prescription drugs, and other health care costs, including some insurance premiums, that exceeded 7.5% of your adjusted gross income (AGI) in 2018. This increased to 10% on Jan. 1, 2019.
- State and local income taxes or sales taxes, real estate (property) taxes, or personal property taxes, up to $10,000. This cap drops to $5,000 for married taxpayers who file separate returns.
- Interest paid on home mortgages of up to $750,000, excluding home equity loans that are not used to "buy, build, or improve" the property. This deduction, too, is reduced for married taxpayers filing separate returns. Married separate filers are limited to $375,000 in indebtedness. These numbers down from what they were in 2017 and the rule about home equity loans were new for the 2018 tax year as well.
- Contributions and donations made to qualified organizations up to 60% of your AGI. Excess charitable contributions can be carried over to future years' tax returns for up to five years.
- Gambling losses, as long as the amount does not exceed the total amount of gambling winnings being reported.
Other Changes Starting in 2018
The debate between itemizing or claiming the standard deduction became more complicated after the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017. The TCJA eliminated some itemized deductions, including those involving work-related expenses, and it restricted others, as mentioned above.
A casualty and theft itemized deduction existed through the tax year 2017, but you no longer can claim a deduction for theft losses, and casualty losses are limited to those that occur within a federally declared national disaster area.
Above the Line
"Above the line" adjustments to income include a portion of any self-employment tax you might pay, contributions to certain qualified retirement plans, and student loan interest. These are subtracted from your income right off the bat to determine your adjusted gross income (AGI). You can claim them as well as the standard deduction or the total of your itemized deductions, which then come off your AGI.
Choosing Itemized or Standard
The IRS indicates that most taxpayers choose the standard deduction. Your total itemized deductions in all categories might add up to only a handful of extra dollars over the standard deduction amount for your filing status if it exceeds the standard deduction amount at all. However, if that's not the case, you’ll save more in taxes if you invest the time and effort into itemizing.
In the end, it comes down to your personal tax situation and which option reduces your taxable income the most.
And here's a caveat: If you and your spouse file separate returns, you both must take the standard deduction or you must itemize. Your returns have to match in this respect.
Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.