Deduction
Candlefocus EditorThe standard deduction is the most commonly used option and is the default choice by default. This deduction allows filers to reduce their taxable income by a given amount and eliminates the need to itemize deductions. In general, the standard deduction is determined by the taxpayer’s filing status and adjusted bi-annually according to inflation. For the 2020 tax year, single taxpayers can take a deduction of $12,400, while joint filers can take a deduction of $24,800.
Itemized deductions, however, are for taxpayers who have multiple deductible expenses, such as medical and dental expenses, certain taxes paid to non-government entities, and charitable donations. In order to take an itemized deduction, taxpayers must complete Schedule A Form 1040 and provide proof of the eligible expenses. This strategy gives filers the opportunity to maximize their deduction and take the money they would be handing over to the IRS and invest in lower tax brackets.
The Tax Cuts and Jobs Act has considerably increased the standard deduction. This major tax reform has made itemsized deductions less desirable as many taxpayers will take the higher standard deduction, resulting in lower taxable income and lower taxes. It is important to note that while itemized deductions may be less beneficial, they can still be taken if the total amount of itemized deductions exceed the standard deduction rate.
In conclusion, the decision to take the standard or the itemized deduction depends on taxpayers’ particular situation. Taxpayers must carefully weigh their options in order to determine which strategy best suits their individual needs. By doing so, they can gain financial solace and substantial tax savings.