For example, if you earned $80,000 and claimed $15,000 worth of deductions as a single filer, that would reduce your taxable income to $65,000. That change from the deduction could bump you down to a lower tax bracket. The IRS gives you a couple of options for deductions. You can claim the standard deduction for your filing status, or you can itemize your deductions, but you can’t do both. Then there are “above the line” deductions, and you can take these in addition to the standard or itemized deductions.
The Standard Deduction
The amount of the standard deduction you’re entitled to depends on your filing status. The tax year 2022 adjustments described below (in the middle column) generally apply to tax returns filed at the beginning of 2023.
Special Rules for Dependents, the Elderly, and the Blind
People older than 65 and those who are legally blind are entitled to an additional deduction on top of the standard deduction. These additional amounts for the 2022 tax year are:
$1,750 if filing as single or head of household$1,400 if married and either you or your spouse is blind or older than 65$2,800 if married and both you and your spouse are blind or older than 65
For 2023, those numbers changed to:
$1,850 if filing as single or head of household$1,500 if married and either you or your spouse is blind or older than 65$3,00 if married and both you and your spouse are blind or older than 65
Itemized Deductions
Itemized deductions allow you to convert otherwise taxable income into nontaxable income if you spend money on certain tax-privileged items. If you choose to itemize, tally up your various deductions item by item on Schedule A, then enter the total on your Form 1040 and file Schedule A with your tax return. Some of the itemized deductions available include:
Medical expenses: Medical, dental, prescription drugs, and other health care costs, including some insurance premiums, that exceeded 7.5% of your adjusted gross income (AGI) are allowable. Taxes paid: You can claim state and local income taxes or sales taxes, real estate (property) taxes, or personal property taxes, up to $10,000. This cap drops to $5,000 for married taxpayers who file separate returns. Charitable contributions: You can claim contributions and donations made to qualified organizations up to 60% of your AGI. Most excess charitable contributions can be carried over to future years’ tax returns. Gambling losses: As long as what you lost does not exceed the total amount of gambling winnings you report, you can deduct it using Schedule A.
Changes With the Tax Cuts and Jobs Act
The debate between itemizing or claiming the standard deduction became more complicated after the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017. The TCJA eliminated some itemized deductions, including those involving work-related expenses, and it restricted others. On the other hand, the standard deduction was essentially doubled. Where you once could take advantage of a casualty and theft itemized deduction, now theft and casualty losses are limited to those that occur within a federally declared disaster area.
Above-the-Line Deductions
“Above-the-line” adjustments to income include educator expenses, contributions to certain qualified retirement plans, and student loan interest. These are subtracted from your income right off the bat to determine your AGI. You can claim them in addition to the standard deduction or the total of your itemized deductions, which then come off your AGI.
Choosing Itemized or Standard
In the end, it comes down to your personal tax situation and which option reduces your taxable income the most. You’ll need to run the numbers to find out whether the amount you can itemize exceeds the standard deduction. Working with an accountant or using trusted tax software can help. And here’s a caveat: If you and your spouse file separate returns, you both must take the standard deduction or you both must itemize. Your returns have to match in this respect.
