Itemized Deductions vs. Standard Deduction 2023

You’ve probably heard that once you have a mortgage or if you start a side hustle, you’ll be able to drastically reduce how much you owe in taxes, BUT while those do count as deductions you might still be better off taking the standard deduction which means those things won’t change how much you owe at all.

Let’s start with the basics, what is the standard deduction? The standard deduction is the amount set forth by the IRS that anyone who files taxes can use to reduce their taxable income. The exact amount is published each year and will vary depending on your filing status, for 2021 if you’re filing as single the standard deduction is $12,550. So, if you made $50,000 and you took the standard deduction, you would only pay a federal income tax on $37,450.

The standard deduction is super simple because all you have to do is subtract the amount that corresponds to your filling status from how much money you made. And because of how much the standard deduction was increased back in 2017, most taxpayers will be better off choosing the standard deduction.

Now for the itemized deduction, as the name implies you are breaking down every deductible expense from the past year, adding them up and subtracting that from your income. But what expenses are considered tax deductible? For that you’ll need to look at IRS Form 1040 Schedule A and its associated instructions.

Example deductions:
• Medical
• State taxes, up to $5,000 (double for married filing jointly)
• Interest expenses (like interest on a mortgage)
• Gifts to charity

Once you have your total added up, it’s a simple decision. What number is higher, your itemized deduction or the standard deduction? If the two are pretty close, then I’d choose the standard deduction because you’re never going to have to ever prove anything where with an itemized deduction you may need to prove where those deductions came from.

#taxes #taxdeduction #irs

DISCLOSURE: We are not financial advisers. The ideas presented in this video are for entertainment purposes only. Although the information is researched and vetted beforehand, it may not be up to date at the time of viewing. Please do your due diligence and research on the topic. You (and only you) are responsible for the financial decisions that you make.

[dennisalvarez]

Your explanation was simple to understand and to the point. Thanks 😊

[junesilvermanb]

Under United States tax law, the standard deduction is a dollar amount that non-itemizers may subtract from their income before income tax (but not other kinds of tax, such as payroll tax) is applied.

Taxpayers may choose either itemized deductions or the standard deduction, but usually choose whichever results in the lesser amount of tax payable.

The standard deduction is available to individuals who are US citizens or resident aliens.

The standard deduction is based on filing status and typically increases each year, based on inflation measurements from the previous year.

It is not available to nonresident aliens residing in the United States (with few exceptions, for example, students from India on F1 visa status can use the standard deduction).

Additional amounts are available for persons who are blind and/or are at least 65 years of age.

The standard deduction is distinct from the personal exemption, which was eliminated by the Tax Cuts and Jobs Act of 2017 for tax years 2018–2025.

[julhe]

Great video with a lot of information. Please I would like to know if I get the standard deduction but I have additional income and expenses from a rental and with the depreciation I’m even ( no gains/loss) could I qualify for standard deductions?? If I itemized will no even be near the standard deductions. Thank you.

[Mrs.B]

What if there is no income? What is the best choice in this situation??

[mistertor]

I have always claimed standard. I always run the numbers, but standard always wins. Itemized came close one year, but since the deduction was doubled, I have not come anywhere near it.