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Book sessionThe Standard Deduction: Are You Leaving Money on the Table?
By: Ernie Neve
When tax season arrives, one of the most critical decisions taxpayers face is whether to take the standard deduction or itemize their deductions. While many opt for the standard deduction due to its simplicity, understanding how it works ensures you’re not leaving potential savings behind.
What Is the Standard Deduction?
The standard deduction is a flat-dollar amount that reduces your taxable income. For 2024, the standard deduction amounts are:
$13,850 for single filers
$27,700 for married couples filing jointly
For example, if your total income is $60,000 and you’re filing as single, you’ll subtract $13,850, leaving $46,150 of taxable income. This straightforward deduction eliminates the need to track specific expenses, making it an appealing choice for most taxpayers.
The Appeal of Simplicity
What makes the standard deduction so popular is its ease of use. Unlike itemizing—where you’ll need to maintain records for expenses like medical bills, charitable donations, or mortgage interest—the standard deduction requires no additional paperwork. It’s available to the majority of taxpayers automatically.
Should You Itemize Instead?
Despite its simplicity, the standard deduction may not always be the best choice. If you had significant expenses in 2024, itemizing your deductions could lead to greater savings. Here’s how:
Homeownership: Mortgage interest paid can often make itemizing worthwhile for homeowners.
Medical Expenses: If your out-of-pocket medical expenses exceed 7.5% of your adjusted gross income, they can contribute to higher deductions.
Charitable Contributions: Significant charitable giving can tip the scales in favor of itemizing.
State and Local Taxes (SALT): High state and local income or property taxes might boost your itemized deductions (up to the $10,000 SALT cap).
The Effort of Itemizing
While itemizing can yield greater tax savings, it requires more effort and meticulous record-keeping. Every deduction must be supported by accurate documentation, such as receipts and statements. Without proper records, you may face challenges if the IRS reviews your return.
When the Standard Deduction Makes Sense
For taxpayers with simpler financial situations, like renters or those without significant medical or charitable expenses, the standard deduction is often the better option. Recent tax law changes have also increased the standard deduction amounts, making this choice more attractive for many individuals and families.
How to Decide
To determine which option is best for you, compare your total eligible itemized deductions to the standard deduction amount. A bit of upfront planning can help you make an informed decision and maximize your savings.
Need Help?
Choosing between the standard deduction and itemizing can be a tough decision, but you don’t have to navigate it alone. If you’re unsure which option to take or want to ensure you’re maximizing your tax return, let’s talk. Together, we can review your financial situation, calculate your potential savings, and make filing your taxes as smooth and beneficial as possible.