by Brandy Bradley
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When individual taxpayers file their federal income tax return (Form 1040), they can use either the standard deduction or itemized deductions. The total amount of these deductions is subtracted from the taxpayer’s adjusted gross income (AGI), which reduces taxable income and tax liability. For 2023, the basic standard deduction amount ranges from $13,850 for single taxpayers to $27,700 for married taxpayers. In addition, if taxpayers are over age 65 or blind, their standard deduction increases slightly. Major tax legislation in 2017 increased the standard deduction amounts considerably so, in our current environment, many taxpayers simply take the standard deduction.
If the itemized deductions do exceed the standard deduction, though, taxpayers can choose to itemize instead. These itemized deductions get reported on Schedule A, which is part of the federal income tax return. What expenses are considered in itemizing? These expenses fall into four main categories: (1) medical and dental expenses, (2) taxes you paid, (3) interest you paid, and (4) gifts to charity. Do keep in mind that some deductions are subject to phase-out limits, which reduce or eliminate the amount of the deduction as income increases.
The list below provides some considerations for you as you determine if you could itemize.
- Medical and dental expenses. These include out-of-pocket costs for preventative care, treatment, surgery, and insurance premiums. Taxpayers can deduct medical and dental expenses that exceed 7.5% of their AGI.
- Taxes you paid. These include state and local taxes (either income tax or general sales tax) and property taxes. Sales taxes paid on the purchase of a vehicle fall into this category, too, and often get overlooked by taxpayers. The tax deduction is limited to a total of $10,000.
- Interest you paid. Mortgage interest and points may be deductible for taxpayers who own a home. The interest on mortgages up to $750,000 is deductible for homes purchased after December 15, 2017. For homes purchased before that date, interest on mortgages up to $1 million is deductible.
- Gifts to charity. Donations to qualified organizations such as religious, educational, and charitable organizations are eligible donations. Most cash contributions are limited to 60% of your AGI for itemization purposes, but AGI limits of 50%, 30%, and 20% do apply to certain types of gifts made to certain types of organizations. Gifts exceeding the AGI limits can be carried forward for up to five years.
- Other less relevant itemized deduction categories include casualty and theft losses and other miscellaneous itemized deductions as detailed in the instructions for Schedule A.
If you could potentially itemize when we file your next tax return, please include those details when you provide your tax information to us. We can look at the information you provide and will let you know if you would receive any benefit from itemizing. If you have questions about standard and itemized deductions, please let us know!