To the average person, taxes are confusing! Especially itemized deductions.
You may hear from one person that you get to take your medical expenses as a tax write-off or that your home mortgage interest is a tax deduction.
Well, that may be true on their return, but for the average person that’s not the case.
Nearly nine out of ten taxpayers now take the standard deduction rather than itemizing according to the IRS.
But before you say, “that’s not fair!” you may be better off not taking those deductions.
WHAT’S BETTER FOR YOU?
STANDARD DEDUCTIONS
On your taxes, you either get to take an itemized deduction or a standard deduction on Line 12 of your Form 1040. These deductions are subtracted from your adjusted gross income to reduce your taxable income.
What’s the difference?
Well, for the standard deduction you don’t have to do any extra expense tracking. Your tax preparer takes the deduction based on your filing status. See the standard deductions for 2020 and 2021 below:
| FILING STATUS | 2020 TAX YEAR | 2021 TAX YEAR |
| Single | $12,400 | $12,550 |
| Married, filing jointly | $24,800 | $25,100 |
| Married, filing separately | $12,400 | $12,550 |
| Head of Household | $18,650 | $18,800 |
ITEMIZED DEDUCTIONS
On itemized deductions, you have to track your household expenses, and you also have to beat the standard deduction.
Most people don’t beat the standard deduction with their expenses. Therefore, if you’re most people you’re benefiting from the standard deduction because you get a greater deduction than you would if you had to take the itemized deduction. Especially since it doubled with the 2018 tax reform.
Expenses that you need to calculate to beat the standard deduction are medical expenses, tax expenses, interest expenses, charitable contributions, etc.
If you think you have more expenses than the standard deduction, then download the itemized deduction template to calculate what your itemized deduction would be.
After adding up your itemized deductions, if your total is greater than the standard deduction for your filing status then you may want to itemize.
Of course, this total amount that you calculated isn’t the exact amount that will show up on your Line 12 Form 1040. Because there are other calculations that go into it.
For example, your medical expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income, Line 11 on Form 1040.
If your itemized deduction sheet exceeds the standard deduction for your filing status, then it may be worth it to provide this documentation to your tax preparer. Your tax preparer can run the numbers for you and see what deduction works best for you.
If you do take the itemized deduction then you need to save all of your receipts!
So which option is best for you?
Stay informed this tax season with tax tips from the Better Than Yesterday blog!
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