Standard deduction vs. itemized deduction definition
Standard deductions reduce income by a set amount, while itemized deductions let taxpayers subtract specific expenses instead of the standard amount.
Standard deductions and itemized deductions are two different ways to reduce the taxable income reported on federal income tax returns. The standard deduction is a fixed dollar amount available to nearly all taxpayers based on filing status. By contrast, itemized deductions are specific expenses that taxpayers may claim instead of the standard deduction.
- The standard deduction lets filers deduct a fixed dollar amount from their taxable income. The amount changes based on a person’s filing status (Single, Married Filing Jointly, Head of Household, etc.), with increases possible for taxpayers who are blind or age 65 or older. Amounts for all statuses are typically adjusted each year for inflation. No additional tax forms are needed to take the standard deduction.
- Itemized deductions let taxpayers deduct specific expenses from a list of allowable deductions. Common itemized deductions include state and local income or sales taxes, gifts to a qualified charity, and home mortgage interest. Filers itemizing deductions need an additional tax form: itemized deductions must be listed on Schedule A (Form 1040 or 1040-SR).
Itemized deductions may be affected by a taxpayer’s income level. While the standard deduction is a fixed amount determined by filing status, many itemized deductions have income-based limitations. Certain deductions, such as medical expenses, casualty losses, and charitable contributions, can only be claimed to the extent they exceed a percentage of Adjusted Gross Income (AGI), while others are capped at a statutory dollar limit (such as the $10,000 cap on state and local taxes). As a result, the amount of allowable itemized deductions often varies with the taxpayer’s income.
Taxpayers must choose one deduction method; it’s not possible to take the standard deduction and itemize.
Choosing an itemized or standard deduction
Choosing whether to itemize or use the standard deduction usually depends on which scenario will lead to the lowest tax bill. If someone’s total allowable itemized deductions are greater than the standard deduction for their filing status, itemizing will typically yield a lower tax bill.
If a taxpayer’s itemized deductions total less than the standard deduction, then taking the standard deduction is simpler and likely to reduce taxes owed the most.
In some situations, taxpayers are required to itemize or are ineligible for the standard deduction:
- Taxpayers who are Married Filing Separately must either both itemize, or both take the standard deduction.
- Most nonresident aliens and dual-status aliens are ineligible for the standard deduction.
- Taxpayers filing a return that covers a period of fewer than 12 months due to a change in accounting period may be required to itemize.
- Estates, trusts, and partnerships are not eligible for the standard deduction.
