Itemized deductions vs Standard deduction
Common Itemized Deductions
1.Mortgage Interest: Homeowners can deduct the interest paid on mortgages up to a certain amount.
2.State and Local Taxes (SALT): You can deduct either state and local income taxes or sales taxes, up to a combined total of $10,000 ($5,000 if married filing separately).
3.Medical and Dental Expenses: Medical expenses that exceed 7.5% of your AGI can be deducted. This includes out-of-pocket costs for treatments, prescriptions, and certain travel expenses related to medical care.
4.Charitable Contributions: Donations to qualified charitable organizations are deductible..
5.Casualty and Theft Losses: Losses from federally declared disasters can be deducted, subject to certain limitations.
6.Investment Interest: If you borrow money to invest, the interest on that loan can be deductible up to the amount of net investment income.
Understanding Tax Deductions
Individuals can take the standard deduction—which nearly doubled under the Tax Cuts and Jobs Act—or itemize their deductions. Here's a rundown of the standard deduction amounts for the 2023 and 2024 tax years:
Standard Deductions in 2023 Tax Year
Standard Deductions vs. Itemized Deductions
Generally speaking, U.S. taxpayers will choose to itemize their deductions or take the standard deduction, depending on which most reduces their taxable income. Contrary to what many taxpayers may think, they might benefit most from the standard deduction because the TCJA nearly doubled the standard deduction amount and eliminated (or capped) many itemized deductions.
If you itemize, you need to keep receipts for eligible expenses throughout the year and organize them into categories. At tax time, you tally and record the expenses on a Schedule A—and hold onto the receipts in case you're audited.
