When tackling your taxes, it can sometimes be hard to figure out whether to itemize or opt for a standard deduction.
According to tax pros, itemizing generally makes sense only if your itemized deductions add up to more than the current standard deduction of $13,850 for a single filer and $27,700 for a married couple.
Here’s what you should know:
Standard deduction versus itemizing
For the vast majority of tax filers, the standard deduction is the way to go. “Generally, taxpayers whose total itemized deductions are less than the standard deduction (based on their filing status) will benefit from taking the standard deduction. However, if the taxpayer’s total itemized deductions are greater than their standard deduction, they must itemize,” says Kathy Pickering, chief tax officer at H&R Block.
There are a few exceptions, though, and some things to consider itemizing that people sometimes forget.
“One situation where it may be beneficial to itemize is when the taxpayer is claimed as a dependent on another taxpayer’s return, and their standard deduction is limited,” Pickering said.
Deductions can include amounts paid for eligible state and local income taxes, real property taxes, personal property taxes, mortgage interest, disaster losses, gifts to charity, and a portion of medical and dental expenses, among others.
According to Tom O’Saben, director of tax content and government relations at the National Assn. of Tax Professionals, the three largest potential deductions for most people are mortgage interest, charitable donations and eligible state and local taxes (known as SALT), which for most people is now capped at $10,000.
Deductions for the self-employed or business owners
“For the small-business owner, almost all tax-deductible business expenses come out of their checkbook. Capturing those is the easy part. But there are a few things that are easy to miss,” says Keith Hall, chief executive of the National Assn. for the Self-Employed (and a CPA himself).
Car use for a small business is one thing. Keep a log in your car. When you go see a client or go to the post office or supply store, jot down those miles. They add up; 65.5 cents per mile is allowed as a deduction for 2023.
The home office deduction is also easy to miss. If you have a dedicated home office for your business, $5 per square foot can be deducted.
Retirement fund contributions can also be deducted, Hall says. Those contributions save tax dollars today. A simplified employee pension fund is something many small-business owners have.
“The SEP is as easy to open as opening a bank account and they can contribute up to 20% of their profit into that account, and it’s tax deductible,” Hall says.
Above-the-line and below-the-line deductions
Pickering points out that there are two types of deductions to consider: above-the-line and below-the-line.
“Above-the-line deductions can be claimed without needing to itemize your deductions and can still be claimed when also claiming the standard deduction. Below-the-line deductions can only be claimed if the taxpayer itemizes their deductions,” Pickering explains.
A common above-the-line deduction is for student loan interest paid. This can be taken even if the standard deduction is taken instead of itemized deductions.
O’Saben says other above-the-line deductions to consider are $300 per tax filer ($600 for a married couple who are both teachers) for K-12 teachers on non-reimbursed expenses used in the classroom such as disinfecting wipes and protective masks. And members of the military who travel should also remember to include deductions for non-reimbursed expenses, he says.
On the other hand, the qualified interest a homeowner pays on their mortgage is a below-the-line deduction, available only to those who opt for itemized deductions instead of taking the standard deduction.
Other below-the-line deductions to consider are medical expenses, although they must exceed 7.5% of gross income to be eligible, O’Saben says.
“In most cases, the list of deductions cannot include health insurance premiums, because those were usually deducted from their paycheck before taxes. It also can’t include over-the-counter supplements or elective things like plastic surgery. Also, these expenses need to have been fully paid for,” he says.
“I have been doing taxes for over 33 years, and I always tell my clients that it’s the reality of what you spent money on that’s going to drive this.”
Check for state- and industry-specific deductions
Sometimes it makes sense to check with your state for state-specific deductions, O’Saben says.
“I’m in Illinois, where they allow an instructional materials credit for K-12 teachers of up to $500 credit. That’s a $500 reduction in your taxes,” he says.
Unlike deductions, which reduce your taxable income, credits reduce your final tax bill.
