Lesson 10: Standard Deduction vs. Itemized Deductions 🤔

Welcome to Lesson 10 of our in-depth guide on Federal Income Tax Law. In this lesson, we will explore the differences between the Standard Deduction and Itemized Deductions and when it makes sense to choose one over the other.

What is the Standard Deduction?

The Standard Deduction is a fixed dollar amount that reduces the income on which you are taxed. The amount varies depending on your filing status, age, and whether you are blind.

Filing Status Standard Deduction Amount
Single $12,550
Married Filing Jointly $25,100
Head of Household $18,800

What are Itemized Deductions?

Itemized deductions allow you to list personal expenses that you incurred throughout the year. These expenses can then be deducted from your taxable income. Common itemized deductions include:

  • Medical and dental expenses
  • Mortgage interest
  • State and local taxes
  • Charitable contributions
Type of Expense Deductible Amount
Medical and Dental Amount over 7.5% of AGI
Mortgage Interest Up to $750,000
State and Local Taxes (SALT) Up to $10,000
Charitable Contributions Up to 60% of AGI

When to Choose Each Option

The choice between the Standard Deduction and Itemized Deductions comes down to whether your total itemized deductions exceed the standard deduction for your filing status. If they do, itemizing can save you more money.

graph LR A[Total Income] -->|Subtract| B[Standard Deduction] A -->|Subtract| C[Itemized Deductions] B --> D[Taxable Income] C --> D

Example Calculation

Suppose you are a single filer with the following expenses:

  • Medical and Dental: $2,000
  • Mortgage Interest: $8,000
  • State and Local Taxes: $4,000
  • Charitable Contributions: $2,500

Your total itemized deductions would be:

\[
  \text{Total Itemized Deductions} = \$2,000 + \$8,000 + \$4,000 + \$2,500 = \$16,500
  \]

Since $16,500 is greater than the standard deduction of $12,550 for a single filer, you should choose to itemize your deductions.

Note: Always consider consulting with a tax professional to determine the best deduction method for your specific circumstances.

Further Reading

For more information, you may refer to the following resources:

📘 Continue Learning

Next, we will dive into Common Tax Deductions, which will provide a detailed overview of frequently used deductions to help you maximize your savings.

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