Making the right choice between standard deduction and itemizing can make a big difference in your taxes. Let's break down how these options work. Note: all numbers used in this article are from 2023. Please know the standard deduction amounts are different each year.
The standard deduction is like a no-questions-asked tax break. For 2023, it's:
You get this full amount no matter what - you don't need receipts or proof of expenses. Think of it as the government's way of saying, "We know everyone has some expenses, so here's a basic deduction everyone can take."
Itemizing means listing out specific expenses that are tax-deductible. Common ones include:
The choice is actually pretty simple: add up all your itemized deductions. Is the total more than your standard deduction? If yes, itemize. If no, take the standard deduction.
For example, if you're married and your itemized deductions add up to $25,000, you're better off taking the standard deduction of $27,700. You'd get to deduct $2,700 more without needing to keep track of receipts.
These days, fewer people itemize than in the past. You might want to itemize if you: