How to choose: Standard Deduction or Itemized Deductions

Jul 02, 2024

How to choose: Standard Deduction or Itemized Deductions

Generally, when we start talking about tax deductions, most people feel confused about standard deduction and itemised deduction. Here, to lower your taxable income, we will see which choice could help you better.

Key Takeaways:

Aspect	Standard Deduction	Itemized Deductions
Simplicity	Simplifies the tax filing process by offering a straightforward deduction	Requires detailed record-keeping and documentation
Applicability	Available to all entitled taxpayers without itemizing expenses	Depends on eligible costs such as medical, taxes, mortgage interest, etc.
Amount for 2024	$14,398	N/A
Benefits	Easy to apply, reduces administrative burden	Potential for higher deductions if eligible expenses exceed the standard deduction
Limitations	The fixed amount may not cover all eligible deductions	Requires meeting specific thresholds and detailed record-keeping
Decision Factor	Best suited for taxpayers with straightforward finances	Beneficial for those with significant deductible expenses
Conclusion	Choose standard deduction for simplicity and ease	Select itemized deductions if expenses exceed the standard deduction

Do you find it difficult to choose between “Standard or Itemized Deduction”?

Here are some highlights to make your decision easy.

Standard Deduction

What Is It?

The standard deduction is identical to a tax cut-off. It is a fixed amount that reduces your taxable income without requiring you to track specific expenses.

Benefits:

· Plainness: No need to keep meticulous records or receipts.

· General: Available to all taxpayers.

· Timesaving: Streamlines tax preparation.

For the 2024 tax year, the standard deduction amounts are as follows:

Filing Status	Standard Deduction Amount
Single Filers	$15,705
Married Couples Filing Jointly	$31,410
Head of Household	$23,560

Itemized Deductions

What Are They?

Itemized deductions will grant you to withhold some detailed proper costs that go beyond your standard deduction.

It is more complex, But if it does surpass your standard deduction, these could be advantages for greater tax savings.

Eligible Expenses for Itemizing:

· Medical Costs: medical payment with your own money that exceeds 7.5% of your amended gross income.

· Home Loan Interest: Interest paid on your home loan.

· Charity: Donations to qualified charities.

· Province and Local Taxes: Real estate, property, income, and sales taxes.

· Job-Associated Expenditures: Such as unreimbursed business expenses.

Example for Comparison:

Here, are some examples that show how itemized deduction could be applicable according to category and comparison with standard deduction.

Category	Standard Deduction	Itemized Deductions
Medical Expenses	Not applicable	$8,000
Mortgage Interest	Not applicable	$10,000
Charitable Donations	Not applicable	$2,500
State and Local Taxes	Not applicable	$6,000
Total Deductions	$13,850	$26,500
Taxable Income (Before)	$50,000	$37,500
Taxable Income (After)	$36,150	$23,000

Conclusion:

Based on your financial situation you can choose knowingly. If your available itemized deductions overdo the standard deduction, itemizing would be a better choice for you. If not, you have a way to go for the standard deduction.

ASAN Can Help

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Disclaimer:
The information provided in this blog is intended for general guidance and informational purposes only and should not be considered as professional accounting, audit, or assurance advice. Please consult with a certified professional for specific advice tailored to your situation.