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Though you must account for all of your income on your tax return, you don't have to pay taxes on every dollar. That's because you can claim standard or itemized deductions and reduce your taxable income.
How do you choose between standard and itemized deductions? Start by looking back at your expenses for the year and compare them with the standard deduction the IRS entitles you to take. Here's a quick look at how.
What Is a Deduction?
A deduction is an expense you can subtract from your taxable income to reduce the amount of tax you pay.
Itemized deductions are individual expense categories. Examples include charity donations, home mortgage interest and medical expenses. To take an itemized deduction, you may need to provide the IRS with documentation. For the home mortgage interest deduction, for instance, you'll need to provide Form 1098 from your mortgage company, which shows how much interest you paid on your loan for the year.
Standard deductions let you use a single predetermined deduction set by the IRS in place of itemized deductions. If you claim the standard deduction, you do not have to track down individual expenses for the year or wade through receipts: You simply find the correct deduction based on your filing status—single, married or head of household—and subtract that amount from your income.
What Is the Standard Deduction?
Exactly how much can you claim as a standard deduction? Here's a chart showing standard deductions by filing status for 2021 and 2022.
|Standard Deductions for 2021 and 2022|
|Filing Status||2021 Tax Year||2022 Tax Year|
|Single or married filing separately||$12,550||$12,950|
|Head of household||$18,800||$19,400|
|Married filing jointly||$25,100||$25,900|
Additionally, if you and/or your spouse are age 65 or older or blind, you may qualify for an additional standard deduction. Check the Standard Deduction Tables in IRS Publication 501: Dependents, Standard Deduction, and Filing Information for more information on calculating these additional standard deductions.
Finally, for the 2021 tax year only, you may claim a charitable contribution deduction of up to $300 ($600 if married filing jointly) even if you use the standard deduction instead of itemizing.
Standard or Itemized: Which Option Is Best for You?
The vast majority of taxpayers claim the standard deduction—just over 86%, according to Tax Foundation estimates. Standard deductions are simple, predictable, relatively generous and don't require extensive documentation and math.
That shouldn't discourage you from itemizing if you have deductions that add up to more than what your standard deduction would be. Here's an example:
Say you earned $60,000 in 2021. If you're single, your standard deduction would be $12,550. But in 2021 you paid $12,000 in mortgage interest and made $2,500 in qualified charity donations. These two deductions alone add up to $14,500—almost $2,000 more than your standard deduction. As long as you can document your deductions, you might as well itemize and lower your taxable income by the additional amount. You likely have additional deductions that will lower your income even further.
If you decide to itemize, there's a long list of potential deductions to consider. You can start with a quick gut check to see whether itemizing is even worth pursuing. A few large potential expenses that can make itemizing worthwhile are:
- Mortgage interest
- Out-of-pocket medical expenses
- Property taxes
- Sales tax
- Charity contributions
- State and local income tax
- Property damage due to a federally declared disaster
If you don't think you spent much in any of these categories—and you didn't have notable expenses anywhere else (think: five-figure gambling loss)—you're probably among the 9 in 10 taxpayers who are better off claiming the standard deduction.
Where to Find Help
Still confused about which way you should go? Tax preparation software may help walk you through your potential deductions for the year so you can determine whether standard or itemized deductions will work best for you. Better still, a tax pro can generally help you make this decision―and may even provide additional insight on how to optimize your tax return.