Summary
In this post, we’ll explore the concept of standard and itemized deductions for tax years 2023 and 2024. We’ll provide a simple and concise explanation of these terms and illustrate with examples to help you determine which option might be more beneficial for you.
Standard Deduction
The standard deduction is a fixed amount that taxpayers can subtract from their Form 1040 taxable income, thus lowering their total tax owed. The standard deduction varies based on your filing status.
For Tax Year 2023:
- Single Filers: $13,850
- Married Filing Jointly: $27,700
- Head of Household: $20,800
For Tax Year 2024:
- Single Filers: $14,600
- Married FIling Jointly: $29,200
- Head of Household: $21,900
Itemized Deductions
Itemized deductions are specific expenses that taxpayers can subtract from their Form 1040 adjusted gross income to decrease their taxable income.
Common expenses eligible for itemization include mortgage interest, property taxes, medical and dental expenses, and charitable donations. For both 2023 and 2024, there is no limitation on itemized deductions.
Please check Form 1040 Schedule A – Itemzied deductions for all itemized deduction items.
Examples
Let’s consider two examples to illustrate the difference between standard and itemized deductions:
Example 1:
John, a single filer, has a taxable income of $50,000 in 2023. He paid $5,000 in mortgage interest, $2,000 in state taxes, and donated $1,000 to charity.
His total itemized deductions amount to $8,000. Since the standard deduction for a single filer in 2023 is $13,850, which is higher than his itemized deductions ($8,000), John would benefit more from taking the standard deduction.
Example 2:
Jane, a single filer, has a taxable income of $100,000 in 2024. She paid $10,000 in mortgage interest, $5,000 in state taxes, $7,000 in medical expenses, and donated $3,000 to charity.
- Medical Expenses: Only the portion of her medical expenses that exceeds 7.5% of her AGI is deductible. So, 7.5% of her AGI of $100,000 is $7,500. Since her medical expenses of $7,000 do not exceed this limit, she cannot deduct any of her medical expenses.
- Charitable Donations: Cash contributions to public charities are limited to up to 60% of a taxpayer’s AGI. So, 60% of her AGI of $100,000 is $60,000. Since her cash donation of $3,000 does not exceed this limit, she can deduct the full amount of her cash donation.
Therefore, her total itemized deductions would be $10,000 (mortgage interest) + $5,000 (state taxes) + $0 (medical expenses, due to the 7.5% limitation) + $3,000 (charitable donations) = $18,000.
Since the standard deduction for a single filer in 2024 is $14,600, which is lower than her itemized deductions ($18,000), Jane would benefit more from itemizing her deductions. However, her medical expenses did not contribute to her itemized deductions due to the 7.5% limitation.
