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Roughly 90% of taxpayers claim the standard deduction vs. itemized deductions. Should you do the same? The answer, as with most tax questions, is: it depends. This article will help you decide. Standard Deduction vs. Itemized Deductions: What’s the Difference?When you file your tax return, you generally have two options:
Claiming the standard deduction is easier because you don’t have to keep track of what you spent, or hold on to supporting documents like receipts, bank statements, medical bills and tax forms. However, if your total itemized deductions are greater than the standard deduction available for your filing status, itemizing can lower your tax bill. For 2022 tax returns (those filed in 2023), the standard deduction numbers to beat are:
Taxpayers age 65 or older or blind can claim higher standard deductions. A worksheet in the IRS Instructions for Form 1040 can help you calculate this amount. Is Itemizing Deductions Right For You?Few taxpayers have enough itemized deductions for itemizing to make sense. However, it’s worth looking at your deductions to see whether itemizing can reduce the amount of tax you owe (or give you a bigger tax refund). To help you out, here are the itemized deductions you may be able to claim on your 2022 tax return. Medical ExpensesYou can deduct out-of-pocket medical, dental and vision expenses. This can include insurance premiums, doctor co-pays, lab fees and the cost of prescription medications, eyeglasses and contact lenses, hospital stays, surgeries and ambulance services. But there is a catch: you only get a tax benefit for medical costs that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI for 2022 is $100,000, you can only deduct medical expenses greater than $7,500 (7.5% of $100,000). State and Local TaxesYou can deduct the state and local taxes you paid during the year, including:
Currently, the IRS limits your total state and local tax deduction to $10,000 ($5,000 if you file married filing separately). For 2022, let’s say you are married and file a joint return with your spouse. Assuming you paid $7,000 in state income taxes and $5,000 in property taxes in 2022, the most you could deduct is $10,000. Consequently, the remaining $2,000 deduction is lost. Mortgage InterestYou can deduct mortgage interest paid on your primary residence and one vacation home. However, the IRS limits your mortgage interest deduction to interest paid on up to $750,000 ($375,000 for married filing separate filers) of debt incurred after Dec. 16, 2017. You can deduct higher amounts up to $1,000,000 ($500,000 for married filing separate filers) of debt incurred prior to Dec. 16, 2017. For tax years 2018 to 2026, you can also deduct interest on a home equity loan or line of credit to the same limits, but to be deductible, the loan proceeds must have been used to “buy, build or substantially improve” your home. In other words, if you take out a $10,000 home equity loan to remodel your kitchen, it’s deductible. On the other hand, it’s not deductible if you use the loan to refinance high-interest credit card debt. Prior to 2018, you could take the deduction no matter how the funds were used, but only up to $100,000. You may also be able to deduct:
Gifts to CharityYou can deduct donations of cash and property as long as you donate to a qualified tax-exempt organization. Most charities will let you know whether they are tax-exempt. If you’re not sure, you can look them up using the IRS’s Tax Exempt Organization Search tool. Casualty LossesIf you suffer property damage due to a federally declared disaster, such as a wildfire, hurricane or flood, you may be able to deduct your loss. You can find a list of federally declared disasters at FEMA.gov. You can’t claim a deduction for any losses covered by insurance, and generally you have to deduct $100 from each casualty loss incurred during the year before calculating your deduction. Compare the best tax software of 2022Other Itemized DeductionsThe final section of Schedule A is a catchall section for other, less common itemized deductions. These include:
You can learn more about other itemized deductions in the IRS Instructions for Schedule A. If you have any of these itemized deductions, then deciding whether to itemize comes down to simple math. Add up your itemized deductions and compare the total to the standard deduction available for your filing status. If your itemized deductions are greater than the standard deduction, then itemizing makes sense for you. If you’re below that threshold, then claiming the standard deduction makes more sense. Helping You Make Smart Tax Decisions Get Forbes Advisor’s ratings of the best overall tax software, as well as the best for self-employed individuals and small business owners. Get all the resources you need to help you through the 2022-2023 tax filing season. Thanks & Welcome to the Forbes Advisor Community! By providing my email I agree to receive Forbes Advisor promotions, offers and additional Forbes Marketplace services. Please see our Privacy Policy for more information and details on how to opt out. What are examples of itemized deductions?Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.
What is never deductible on Schedule A itemized deductions?Some taxes and fees you can't deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection.
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