You may want to lower your taxable income and have heard that claiming either a standard deduction or an itemized deduction could help, but you’re not really sure what those are. While paying your taxes may not be your first choice, they don’t have to break the bank once you start filing for deductions. If you need help understanding what the difference is and want to start lowering your taxable income we can help!
The Differences Between Itemized vs. Standardized Tax Deductions
Standardized Tax Deductions
A standardized tax deduction is a part of your income that is not taxable and often used in order to reduce a tax bill. It varies depending on your filing status and is considered a fixed dollar amount that reduces the income you will be taxed on. With a standard tax deduction, you can,
- Deduct regardless of if your expenses qualify for claiming itemized tax deductions
- Eliminate your need for itemized deductions, such as charitable donations or medical expenses
With a standard deduction you may end up saving less than you would with an itemized deduction, however they are easier to claim and almost everyone is entitled to standardized tax deductions. The few scenarios you will not be able to claim a standardized tax deduction is if:
- You are married and both are filing separately
- You're a nonresident alien, a dual-status alien or someone who is filing a tax return for a period of less than a year
- You've been claimed as a dependent on someone else's taxes
Itemized deductions, like standardized, can reduce your adjusted gross income. However, these deductions are claimed on a Schedule A and separated into five categories:
- Medical and dental expenses
- Taxes paid
- Interest paid
- Charitable gifts you’ve contributed
- Theft and casualty losses
By claiming either of these, you can save more money on your taxes because you’re able to claim more expenses. However, with itemized deductions comes paperwork and some restrictions. The itemized deduction for both state and local taxes are capped at $10,000. You can also only deduct medical and dental expenses for procedures that are a certain percentage higher than your adjusted gross income may be itemized for.
Your yearly income can interfere with the amount that you can deduct from your taxes yearly, the higher your income than the less you’re allowed to deduct. There is no right or wrong way to lower your taxable income. Between standardized and itemized, whichever you will receive more deductions from is the one you should choose to do.