When you file a federal income tax return, you have the choice between taking the standard deduction or itemizing your deductions. The option that you pick should depend on which strategy will maximize your tax benefits. Your calculations may also have changed in recent years following the passage of President Donald Trump’s Tax Cuts and Jobs Act in 2017. Here’s a look at who should itemize under the new tax plan. Working with a financial advisor can help you optimize a tax strategy for your financial goals and needs.
Comparing Standard vs. Itemized Deductions
When you claim a standard deduction, it allows you to deduct a set amount of money from your taxes. And when you claim itemized deductions, you lower your income from a list of qualifying expenses that were approved by the IRS. Taxpayers usually claim the option that lowers their tax bill the most.
The Trump tax plan overhauled the tax code in December 2017, which lowered individual tax rates, raised standard deductions, and lowered the deduction threshold for medical expenses, among other changes.
The table below breaks down standard deductions by filing status and compares the tax years 2017 vs. 2022 and 2023.
|Filing Status||Tax Year 2017||Tax Year 2022||Tax Year 2023|
|Single Taxpayers/Married Individuals Filing Separately||$6,350||$12,950||$13,850|
|Married Couples Filing Jointly||$12,700||$25,900||$27,700|
|Heads of Household||$9,350||$19,400||$20,800|
As you can read above, the standard deduction for single taxpayers and married individuals filing separately has increased from $6,350 in 2017 to $13,850 in 2023. It went from $12,700 in 2017 to $27,700 in 2023 for married couples filing jointly and gone from $9,350 in 2017 to $20,800 in 2023 for heads of households.
However, Trump’s tax changes eliminated the $4,050 personal exemption that you could claim for yourself and each of your household dependents in 2017, which made itemizing tax deductions less beneficial for many taxpayers, including large families. The Tax Cut and Jobs Act eliminated the personal exemption for tax years 2018 through 2025.
So, as an example, if you’re a single filer with $10,000 worth of deductions, itemizing on your 2022 taxes won’t save you anything because the personal exemption is no longer available and the standard deduction is higher.
What It Means to Itemize Deductions
When you itemize deductions, you are listing expenses that will later be subtracted from your adjusted gross income to reduce your taxable income. If your expenses throughout the year were more than the value of the standard deduction, itemizing is a useful strategy to maximize your tax benefits.
Keep in mind that not all expenses qualify when you itemize. Itemized deductions include products, services, or contributions that have been approved by the IRS. If you aren’t familiar with which expenses you can deduct, you may want to read a guide to itemized deductions. In brief, things you can deduct include:
Itemized deductions are called below-the-line deductions because they are subtracted from your adjusted gross income. So it’s worth noting that you can claim above-the-line deductions like IRA contributions without itemizing.
Who Should Itemize Deductions in 2023 and Beyond?
To decide whether itemizing is worth it, you will need to do some math. Add up all the expenses you wish to itemize. If the value of expenses that you can deduct is more than the standard deduction (as noted above, for the tax year 2023 these are: $13,850 for single and married filing separately, $27,700 for married filing jointly, and $20,800 for heads of households) then you should consider itemizing.
Another big consideration is that itemizing will require a bit more work. Itemizing requires you to keep receipts throughout the year. You also need to keep those receipts after you file just in case of an audit. (Don’t forget that the IRS may audit a return from as long as six years ago.) On the other hand, if you take the standard deduction, there is no extra math and you don’t need to keep any receipts.
For most people, there is a balance between the work required to itemize and the amount you save by itemizing. For example, let’s say you want to itemize. You add up all your expenses and find that you would save $500 by itemizing. It’s probably worth doing a little extra work to get $500. What if you add up your expenses and see that itemizing would only save you $100? That $100 may still be worth it for some, but for others, it may just be easier to take the standard deduction and not worry about keeping track of your receipts.
Generally speaking, itemizing is a good idea if the value of your itemized expenses is more than the value of the standard deduction. Because the Trump tax law more than doubled the standard deduction for the 2023 tax year compared to 2017, some people who itemized their 2017 taxes will not benefit from itemizing their 2022 and 2023 taxes.
Even if itemizing would save you more than the standard deduction, consider the amount of time and energy that also goes with itemizing. The biggest example of that would be keeping track of your receipts and expenses throughout the year. You should also keep your receipts for seven years after you file your taxes in case of an audit.
Tips to Get You Through Tax Season
- A financial advisor with tax expertise can help you at tax time. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Keeping all of your tax documents organized will help you ace your tax filing. If you choose to itemize, staying organized includes keeping all your receipts. You should keep receipts for at least a few years after you file. It isn’t uncommon for the IRS to also look at returns from three to six years prior to the return they are actually auditing. And depending on which deductions you take, like the home office deduction, your return may be more likely to trigger an audit.
- When you file your taxes, there are quite a few tax filing services to choose from. Two of the most popular, H&R Block and TurboTax both offer a user-friendly design with good explanations of the filing process. Here’s a breakdown to help you decide which service may be better for you.
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