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This article was fact-checked by our editors and CPA candidate Janet Murphy, senior product specialist with Credit Karma Tax®. It has been updated for the 2019 tax year.
Paying taxes is as American as apple pie.
But unlike being able to say “yes” or “no” to a sweet slice of dessert, you don’t have much choice in paying your fair share to Uncle Sam every year. The good news is that when you do your federal income tax return, you’ll have numerous decisions to make that may help lower your tax bill, including choosing between taking the standard deduction vs. itemizing your deductions. Read on to learn the basics of the two deduction options.
- The choice: Standard deduction vs. itemizing
- What is the standard deduction?
- Who can claim the standard deduction?
- What are some pros and cons of the standard deduction?
- What are itemized deductions?
- What are some pros and cons of itemized deductions?
- What are some itemized deductions I might be able to take?
The choice: Standard deduction vs. itemizing
The majority of tax filers can choose between taking the standard deduction or itemizing their deductions. Because these deductions reduce your taxable income, they can also reduce your tax bill.
You don’t need to fill out any additional forms in order to take the standard deduction — just note it on your federal income tax return. If you itemize, you’ll need to complete and file a Schedule A along with your Form 1040.
You’ll likely want to select the option that reduces your taxable income the most. But how do you know which one that is?
What is the standard deduction?
The standard deduction refers to specific amounts set by the IRS that you’re allowed to deduct from your adjusted gross income. Since it reduces your taxable income, it decreases your tax liability. Because taking the standard deduction doesn’t require filling out additional paperwork, it can be a quick and easy option.
Here are the standard deduction amounts for 2020.
- $12,400 for single taxpayers or married couples filing separate tax returns
- $18,650 for people filing as head of household
- $24,800 for married couples filing jointly
The amounts increase slightly for 2021 taxes (which are due in 2022).
- $12,550 for single taxpayers or married couples filing separately
- $18,800 for head of household
- $25,100 for married couples filing jointly
There’s an additional standard deduction for taxpayers who are 65 and older or blind.
Who can claim the standard deduction?
Most people can choose the standard deduction when filing their taxes, but there are some factors that could eliminate that option. Here are some taxpayers who aren’t entitled to the standard deduction.
- A married person who files separately and their spouse itemizes deductions; if one partner itemizes, both must itemize.
- Someone who files a tax return that’s for a period of less than 12 months because of a change in that person’s accounting period.
- Taxpayers filing as an estate or trust, common trust fund or partnership.
Can you take tax credits if you choose the standard deduction?
Tax credits, like the American opportunity tax credit and the earned income tax credit, are different than deductions.When you do your taxes, you’ll first decide between taking the standard deduction and itemizing. After that, you’ll have the opportunity to claim credits. Your decision on how to file deductions doesn’t affect your ability to utilize credits.Some people confuse deductions and credits, but they’re two different things. Deductions are subtracted from your income before calculating your tax bill. How much this will affect your tax bill depends on your tax bracket.A credit will reduce your tax bill by a specific dollar amount. That means if you qualify for a tax credit of $2,000 and your tax bill is $4,000, you only owe the remaining $2,000 in taxes ($4,000 – $2,000 = $2,000).Learn more about the difference between tax credits and tax deductions.
What are some pros and cons of the standard deduction?
Simplicity is a significant advantage of taking the standard deduction.
As we mentioned earlier, you don’t have to file an additional form to take it. And arriving at your standard deduction amount takes zero math — just plug in the amount the IRS says applies to your filing status. What’s more, most taxpayers can use the standard deduction (with the exceptions noted earlier).
The downside of the standard deduction is that it limits the amount of deduction you can take. But if you itemize, there’s no limit to the amount of deductions you can take — there used to be, but the Tax Cuts and Jobs Act of 2017 suspended the limit until the 2026 tax year.
That means if the total itemized deductions you qualify for would add up to more than the standard deduction for your filing status, taking the standard deduction could mean you leave money on the table at tax time.
What are itemized deductions?
When you choose to itemize, you list all qualifying deductible expenses by completing a Schedule A.
If you think your itemized deductions could be higher than the standard deduction, you might want to consider itemizing on your return. The extra work may result in a lower tax bill.
Itemized deduction amounts will vary by taxpayer based on the number of qualifying deductions and the total of those deductions. When filing, you’ll need to list each deduction and be able to substantiate it. That means you must have proof of the deduction, such as a record or receipt.
What are some pros and cons of itemized deductions?
Taxpayers who itemize their deductions are trying to maximize their deduction amount in order to reduce their adjustable gross income as much as possible. Why? Because this can equate to paying less tax.
A lower tax bill is a big positive, but it does take additional work if you’re relying on itemizing to get you there. Unlike the standard deduction, itemizing requires that you take the time to list qualifying deductions on Schedule A, calculate the appropriate expenditures and maintain necessary records.
What are some itemized deductions I might be able to take?
If you’re eligible for them, these are some of the deductions you can claim on Schedule A.
Interest on mortgage loans
For 2020, you can claim a deduction for the interest on a new mortgage of no more than $750,000, or $375,000 for married taxpayers filing separately. If your mortgage is from before Dec. 15, 2017, it’s grandfathered in under old rules that allow you to deduct home mortgage interest on loans of up to $1 million ($500,000 for those married filing separately).
Private mortgage insurance premiums
For 2020 income taxes, you can deduct qualified mortgage insurance premiums you paid for your first or a second home. But the amount you can deduct is reduced if your adjusted gross income is more than $100,000 ($50,000 if married filing separately) and phases out entirely if your AGI is more than $109,000 ($54,500 for married filing separately). Those phase-out amounts could change for 2020.
State and local taxes
The state and local tax deduction, also referred to as SALT, allows you to deduct state and local real estate taxes you paid and either state and local sales tax or state and local income tax (but not both income and sales taxes). Previously uncapped, there is now a limit of $10,000 ($5,000 in the case of a married individual filing a separate return) for all state and local taxes combined. For example, if your property taxes were $12,000 in 2017, you were able to deduct the entire amount. When you file 2019 taxes, you’ll only be able to deduct $10,000 of the total because of the cap.
For the 2020 tax year, you can deduct qualified medical expenses that are equal to 7.5% of your adjusted gross income.
If you donate cash, property or volunteer time to a qualified charitable organization, you may be able to take a deduction for your charitable contribution or out-of-pocket volunteer expenses. The rules for deducting charitable donations are specific, so be sure you understand what’s required before taking the deduction.
If you suffered a property or theft loss due to a federally declared disaster, you may be able to take a deduction for your losses. To take the deduction, each loss must be worth more than $100 and your total losses during the year must add up to more than 10% of your AGI (minus the $100 limit).
Do you have to itemize to deduct student loan interest?
You don’t have to itemize in order to take a deduction for student loan interest, if you qualify for the deduction. The IRS allows you to deduct the amount of interest you paid during the tax year on qualifying student loans up to $2,500 as long as you haven’t reached the annual modified adjusted gross income limits for your filing status.
Choosing between the standard deduction and itemized deductions is a personal decision, so you should weigh the tax benefits of each deduction method before you decide which one to take. Taking the standard deduction is typically easier, and since tax reform increased the amounts for all filing statuses starting with 2018 taxes, it’s likely more people will choose this option in the future.
But itemizing deductions may be worthwhile if that amount surpasses the standard deduction amount, meaning you can reduce your tax bill even more.
Relevant sources: Tax Cuts and Jobs Act of 2017 | IRS: Itemize or Choose the Standard Deduction | Internal Revenue Bulletin: 2018-10 | IRS News Release: Certain Benefits Increase Due to Inflation | IRS: Topic No. 551 Standard Deduction | IRS: Form 1040 — 2019 | IRS: Credits & Deductions for Individuals | IRS: About Schedule A (Form 1040), Itemized Deductions | IRS News Release: Interest on Home Equity Loans Often Still Deductible Under New Law | IRS Notice 2018-54 | IRS: Topic No. 456 Student Loan Interest Deduction
A senior product specialist with Credit Karma Tax®, Janet Murphy is a CPA candidate with more than a decade in the tax industry. She’s worked as a tax analyst, tax product development manager and tax accountant. She has accounting degrees and certifications from Clemson University and the U.S. Career Institute. You can find her on LinkedIn.