Should I Itemize or Take the Standard Deduction?

Every year it's up to you to decide whether you should itemize or take the standard deduction. However, as a result of the Tax Cuts and Jobs Act (TCJA), the tax reform law that took effect in 2018, far fewer Americans will need to itemize than in the past.

Today, only about 11% of all taxpayers itemize, compared with 30% before 2018.

The Standard Deduction

The standard deduction is a specified dollar amount you're allowed to deduct each year to account for otherwise deductible personal expenses such as medical expenses, home mortgage interest and property taxes, and charitable contributions. You take the standard deduction instead of deducting your actual personal expenses.

The amount you're allowed to deduct depends on your filing status and is adjusted for inflation each year. The TCJA roughly doubled the standard deduction starting in 2018. The IRS website has information on the current year's standard deduction amounts.

For the tax year 2022, the standard deduction amounts are as follows:

Itemizing Deductions

Instead of taking the standard deduction, you always have the option of itemizing your deductions. You individually deduct the actual amounts of certain expenses item by item instead of taking the standard deduction.

You must list all the deductions on IRS Schedule A and include this schedule with your tax return. This is a lot more work than taking the standard deduction. You have to know what expenses are deductible and keep track of them. You also need to keep records of your expenses. Canceled checks or credit card statements aren't enough—you need to keep receipts and other bills showing what you spent the money on.

Itemized deductions are usually personal in nature and don't include business expenses. Some of the more common ones are:

• medical and dental expenses
• state and local income taxes, or sales tax
• real estate and personal property taxes
• home mortgage interest
• charitable contributions, and
• casualty losses.

The largest of these deductions are those for home mortgage interest, property taxes, and state income tax. For this reason, homeowners are more likely to itemize, while renters rarely do so.

But most of these expenses can't be deducted in full. Instead, they're subject to special limitations. The TCJA stiffened the limitations for many of these deductions. For example, home mortgage interest on homes purchased in 2018 through 2025 may only be deducted on acquisition loans totaling $750,000 (it was $1 million under prior law). And only a maximum $10,000 deduction is allowed for state and local taxes and property taxes. Casualty losses are deductible only for losses due to federally declared disasters. Medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income.

Moreover, the TCJA eliminated itemized deductions for several types of expenses during 2018 through 2025—these include:

• unreimbursed employee expenses, such as work-related driving
• tax preparation expenses
• investment expenses, and
• moving expenses to a new job.

So, you might find that few or none of your personal expenses are deductible.

Choosing Whether to Itemize

You must choose whether to itemize or take the standard deduction each year. The IRS won't tell you what's in your best interest—it doesn't care if you make the wrong choice and overpay your taxes. You (or your tax preparer) must decide.

Obviously, you should itemize only if it will give you a larger total deduction than the standard deduction for that year. You will likely be able to itemize only if you:

• had large uninsured medical and dental expenses during the year
• paid substantial interest and taxes on your home
• had significant uninsured casualty losses due to a federally declared disaster, or
• made large charitable contributions.

Through careful planning, you can often increase your deductible expenses for a given year so that it pays to itemize that year. For example, you can bunch your charitable contributions in one year instead of spreading them over two or more years. This will give you a bigger deduction for the bunched year and might enable you to itemize.

The same strategy can be used for discretionary medical expenses.

Talk to a Lawyer

If you have questions about whether you should itemize or take the standard deduction, contact a local tax lawyer.