Standard or Itemized Deductions: What’s the Right Call for You?

To obtain the highest refund as possible – or pay the IRS as little as possible – you’ll need to figure out whether it pays to itemize on your upcoming tax return or claim the standard deduction. Here’s how to make that call.

 

It’s all about the numbers

 

You’ll need to see if itemizing even makes sense. Figuring this out involves comparing your total itemized deductions to the standard deduction you’re entitled to claim. The standard deduction changes every year. For the 2020 tax year the standard deduction is based on your filing status:

 

  • $12,400 for single filers and married couples filing separately
  • $24,800 for married couples filing jointly
  • $18,650 for heads of household

 

Now, say you’re married and file a joint tax return with your spouse. If you own a home or have various deductions that total more than $24,800, then itemizing clearly makes sense. But if your deductions don’t exceed that total, then it pays to go with the standard deduction. It’s that simple.

 

Deductions you can take even if you don’t itemize 

Keep in mind that there are certain deductions you’re entitled to take even if you don’t itemize your taxes. These include:

  • IRA contributions
  • HSA contributions
  • Educator expenses
  • Student loan interest, depending on your income
  • Charitable donations of up to $300 (this is unique to the 2020 tax year; normally, you can only deduct charitable contributions when you itemize)

 

Deductions You Can Itemize

  • Mortgage interest on the first $750,000 of indebtedness—or $1 million, if you bought the home before Dec. 16, 2017
  • Charitable contributions
  • Medical and dental expenses (over 7.5% of AGI in 2020)
  • State and local income, plus either personal property or sales taxes up to $10,000
  • Gambling losses
  • Investment interest
  • Up to $2,500 in student loan interest
  • Up to $250 for educators buying classroom supplies

 

Deductions You Cannot Itemize

  • Mortgage interest on loan amounts over $750,000—unless you bought your home before Dec. 16, 2017
  • State and local income, sales, and personal property taxes beyond $10,000
  • Alimony payments
  • Moving expenses (except active-duty military)
  • Unreimbursed employee expenses
  • Tax-preparation expenses
  • Natural disaster losses (unless in a federally declared disaster area)

 

Choosing whether to itemize versus claim the standard deduction is important, so run those numbers to see what makes the most sense. Getting that call just right could lower your tax debt or put a higher refund in your bank account this year.

 

 

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