Itemized deductions and standard deductions are two methods by which taxpayers can reduce their taxable income. Understanding the differences between the two can help individuals make informed decisions when filing their taxes.

Itemized Deductions:

Itemized deductions are specific expenses that individuals can claim to lower their taxable income. These expenses can include medical expenses, state and local taxes, mortgage interest, charitable contributions, and certain job-related expenses. Taxpayers must keep records and receipts to support their itemized deductions.

Example: If an individual has $15,000 in deductible expenses such as mortgage interest, property taxes, and charitable contributions, they may choose to itemize these deductions on their tax return.

Standard Deduction:

The standard deduction is a fixed dollar amount that reduces the taxpayer's income based on their filing status. It is a simplified method of reducing taxable income and is available to all taxpayers, regardless of their actual expenses. The standard deduction amount is adjusted annually for inflation.

Example: For the tax year 2021, the standard deduction for a single filer is $12,550, while for a married couple filing jointly, it is $25,100. If a taxpayer's total itemized deductions are less than the standard deduction amount, it may be more beneficial for them to take the standard deduction.

It's important for taxpayers to compare their potential itemized deductions to the standard deduction amount and choose the method that results in the greatest tax benefit.

References:

• IRS - Topic No. 501: Should I Itemize?
• IRS - Standard Deduction