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This article has been updated for the 2018 tax year.
You probably know that tax deductions can help reduce your federal income tax bill, but should you take the standard deduction, or itemize instead?
Most new filers generally start with the standard deduction. But even veteran filers who have itemized their deductions in the past to maximize their savings may be considering the standard deduction for their 2018 tax returns (which are due in 2019).
The Tax Cuts and Jobs Act of 2017 temporarily increased the standard deduction for all filing statuses. Let’s look at how the standard deduction works and some things you should consider when you’re deciding whether to take the new higher standard deduction or itemize.
What is the standard deduction?
The standard deduction is a set dollar amount you’re allowed to shave off your adjusted gross income, and it reduces your taxable income. Taking it is simple and doesn’t require filling out a lot of additional paperwork.
For 2018, the standard deduction is nearly double the 2017 amounts.
- $12,000 for single taxpayers or married people filing separate returns
- $18,000 for people filing as head of household
- $24,000 for married couples filing jointly
Those higher standard deduction amounts will be in effect for tax years between Dec. 31, 2017, and Dec. 31, 2025, unless Congress acts to extend the change.
If you are 65 or older or are blind, your standard deduction could be even higher.
The standard deduction reduces your taxable income before you make any other calculations. For example, if you file as a single taxpayer and earned $75,000 in 2018, claiming the standard deduction of $12,000 would reduce your taxable income to $63,000.
Who can take the standard deduction?
Generally, the standard deduction is available to anyone who doesn’t itemize actual deductions (such as medical expenses, charitable contributions, property taxes, etc.).
But you can’t take the standard deduction if you’re married filing separately and your spouse itemizes deductions on his or her individual return. In certain situations, a change in your annual accounting period (if you own a business) or residency factors for noncitizens also could make you ineligible for the standard deduction. And if someone else is claiming you on their tax return, then your standard deduction may be limited.
What’s the advantage of taking the standard deduction?
In addition to reducing your taxable income and possibly lowering your tax bill, the standard deduction is also very simple. The calculation for claiming it is basic math, and you don’t have to fill out any additional tax forms to claim it, which you must do if you itemize deductions instead.
Free online tax-preparation services, like Credit Karma Tax®, make it particularly easy to claim the standard deduction. Through a series of lifestyle-based questions, the software can also help you determine which will give you the most tax benefit: the standard deduction or itemizing deductions.
Still need to file?
Whether you got an extension until October or missed the April 17 filing deadline, you can still efile your federal income taxes for free with Credit Karma Tax®.
When should you itemize instead of taking the standard deduction?
You might choose to itemize deductions, such as charitable donations or medical expenses, if the tax benefit of doing so would be greater than what you would get if you were to claim the standard deduction.
This can happen in different situations, such as when …
- You’re not eligible to claim the standard deduction
- You had high medical or dental bills that weren’t reimbursed by insurance during the year
- You paid property taxes and mortgage interest as a homeowner
- You made substantial contributions to a qualified charity or charities
- You had a large amount of work expenses that you didn’t get reimbursed for
- You experienced high uninsured casualty or theft losses
Itemizing deductions can potentially allow you to claim a higher amount than the standard deduction, and to recoup some tax benefit from some specific expenses you might have throughout the year.
But with the significantly higher standard deduction that takes effect in 2018, it’s possible that fewer people will find itemizing adds up to a higher deduction. In fact, the White House’s Council of Economic Advisers predicts that the increased standard deduction and the reduction in the mortgage interest deduction will contribute to a decrease in the number of filers who itemize from 26% to just 8%.
If you do opt to itemize deductions on your federal income tax return, you’ll need to use Form 1040 and complete a Schedule A.
What's the mortgage interest deduction for 2018?
Tax reform limited the mortgage interest deduction for tax years between Dec. 31, 2017, and Dec. 31, 2025. For 2018, you can claim a deduction for the interest on a new mortgage (taken out after Dec. 15, 2017) of no more than $750,000, or $375,000 for taxpayers married filing separately.
This means if you take out a mortgage for more than $750,000 in 2018, you won’t be able to deduct the interest paid on the portion of the loan that exceeds the limitation. If you got your mortgage before Dec. 15, 2017, your mortgage interest deduction is grandfathered under the old rules, which allowed you to deduct interest on mortgages of up to $1 million ($500,000 for those married filing separately).
You can only deduct mortgage interest for a mortgage loan you used to buy, build or improve a qualified residence or refinance an existing mortgage. A qualified residence means your principal home (house, condo, co-op, mobile home, house trailer or boat) and one other residence.
Claiming the standard deduction has always been the easier way to do your taxes, especially if you’re a first-time filer or have few deductible expenses. It’s a simple, easy-to-use way to reduce your taxable income, and possibly your tax bill.
Veteran filers may find that the significantly higher standard deduction makes itemizing deductions less worthwhile. Unless your itemized deductions total more than the standard deduction for your filing status, the easier route may actually be the more beneficial one this tax year.