Tax deductions can have a major effect on your tax bill. They are write-offs that help you offset your taxable earnings and reduce your tax bill. As you read the following commonly asked questions about tax deductions, think about how they might apply to you.
1. What are my options when it comes to deductions?
In most cases, taxpayers can choose between taking the standard deduction — a set dollar amount determined by the IRS that varies based on one’s filing status — and itemizing their deductions. The latter option involves listing the specific deductions that you qualify for in a given tax year. Everyone can itemize (though doing so may or may not be advantageous), but not everyone qualifies for the standard deduction. Note that for 2022, the standard deduction has increased to $12,950 for individuals.
2. When can’t I take the standard deduction?
Some people aren’t eligible for the standard deduction and must itemize in order to benefit from deductions on their tax return. If you’re married filing separately and your spouse itemizes deductions, you must also itemize. And if you’re filing a tax return for a period of less than 12 months, or if you were a nonresident or dual-status alien during the year, you are also ineligible to use the standard deduction and must itemize in order to receive any deductions for which you’re eligible. (However, if you are a nonresident alien and are married to a US citizen or resident alien and you and your spouse elect to be considered US residents for the year, you’re eligible to use the standard deduction.)
3. Why should I choose one over the other?
The standard deduction requires the least amount of paperwork; it’s the one most taxpayers use. With the standard deduction, you don’t need to keep records to back up deductible expenses. And if you don’t have a lot of deductible expenses to itemize, the standard deduction will most likely qualify you for a larger deduction on your return. If you itemize your deductions, you’ll need to use Form 1040 to file your taxes, and list each of your deductions on the IRS Schedule A form; taxpayers who itemize cannot use Form 1040A or 1040EZ.
4. How much is the standard deduction for 2022?
The amount of the standard deduction varies depending on your age, income, and filing. The amount also usually changes slightly each year to keep up with inflation, as it did between 2020 and 2021. The standard deduction comes with additional increases for people who are 65 or older and taxpayers who are blind.
5. When might itemizing deductions make more sense?
The standard deduction is larger under the new tax code, but there are situations when itemizing will earn you a larger deduction, especially if you’re deducting a number of big-ticket items at the same time. For instance, if you’ve been paying mortgage interest and/or property taxes (up to $10,000) on a first or second home during this tax year, or if you’ve made sizable charitable donations, then itemizing might be worthwhile. And if you’ve suffered large losses due to theft or casualty or had major medical or dental expenses that are not reimbursable, itemizing may result in a higher total deduction than taking the standard deduction.
6. Which expenses can I deduct if I itemize?
There are a number of expenses you can deduct if you itemize. Here are the most common ones:
- Interest paid on a mortgage (up to $750,000, or $1 million on loans taken out before Dec. 16, 2017) or home equity loans if they are used to purchase, build, or make a significant improvement on first and second homes
- Home mortgage points
- Property taxes and state and local income taxes or sales tax up to $10,000
- Unreimbursed, qualified out-of-pocket medical or dental expenses that total more than 7.5 percent of your adjusted gross income
- Charitable donations
- Casualty or theft losses as a result of an event declared a disaster by the US president
7. Is itemizing the only way to qualify for any deductions?
Not necessarily. There are some deductions that are considered “above-the-line” deductions, meaning they can be taken whether you choose to take the standard deduction or itemize your expenses. Above-the-line deductions reduce your adjusted gross income (AGI), while standard and itemized deductions are subtracted from your AGI. Student loan interest, health savings account contributions, and traditional IRA contributions are examples of some commonly found above-the-line deductions.
If you’re not entirely sure which deduction approach makes the most sense, total your qualifying expenses and see if they exceed the standard deduction for your filing status. If you do plan to itemize your deductions, be sure to keep careful documentation of your expenses in the event of an audit.
A version of this article appeared in our partner magazine, The Essential Tax Guide: 2023 Edition.