Standard Deductions vs. Itemized Deductions
One of the most complicated – or at least cluttered – aspects of the tax code is all the different kinds of tax deductions there are. Above-the-line deductions, standard deduction, itemized deductions … what's the difference, and which do you qualify for?
We'll look at these three different terms, but first, understand that all deductions work by cutting your taxable income. And lower taxable income means less in taxes for you. Deductions are intentional loopholes, written into the tax code to give you a break for certain financial and life circumstances.
The three different types of deductions we've mentioned differ in where they appear on the tax return, and who qualifies to claim them.
The first of these, and the most basic, are the so-called above-the-line deductions. They're really stand-alone adjustments, and you may qualify for them whether you itemize or take the standard deduction (we'll get to those in a bit). These deductions include:
- Education expenses – This includes tuition and fees paid by students, and some qualifying expenses for teachers.
- Moving expenses – If your move is for the purpose of taking advantage of a new job (and the move meets IRS distance requirements) you can qualify for this.
- Student loan interest
- IRA contributions – If you have a qualified IRA, portions of the amount you contribute can be deducted from income.
Up next, we come to a fork in the road: you either have to claim the standard deduction or itemize deductions. Naturally, you'd want to pick whichever saves you the most money, and that's exactly what we do for you on your 1040.com return.
The first option, the standard deduction, is just what it sounds like: a fixed, base level amount you can get if you don't qualify for a higher amount through itemized deductions. If your tax picture is pretty simple, and you don't have a lot of special circumstances that you can write off as itemized deduction, you'll probably get the standard deduction. The standard deduction is a set amount based on your filing status – married filing jointly, single, head of household and so on. For the 2016 tax year, that's $6,300 for single or separate filers, $12,600 for married filers, and $9,300 for head of household filers. Those amounts go up if you're over 65, or blind, or both.
Finally, the most beneficial are the itemized deductions. Other than above-the-line deductions covered above, the rest are tax breaks you can only take if you itemize. In effect, by itemizing you're foregoing the standard deduction (you can’t get both), and opting to take the specific deductions you list on your tax return. Some of the more common itemized deductions include:
- Mortgage expense – This can include mortgage interest and mortgage insurance premiums.
- Other taxes – You may be able to deduct the amount you’ve paid previously for personal property taxes, state and local taxes and real estate taxes.
- Gifts to charity – if you can itemize, you can deduct the fair market value of the spare TV you donated to the animal shelter’s thrift store, as well as donations to a church.
- Casualty or theft loss – The thief got your car stereo, but you could get a deduction for the cost of the replacement.
- Medical and dental expenses – A deduction is available for unreimbursed expenses above a certain percentage of your income.
For more details, take a look at our Standard vs. Itemized Deductions infographic.