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Every year, many people are faced with the decision of whether to take the standard deduction or itemize their deductions on their taxes. The standard deduction is a fixed dollar amount that reduces overall taxable income by that dollar amount, no questions asked. On the other hand, the itemizing option involves listing out individual expenses that the IRS deems allowable to reduce your taxable income. Which deduction method to choose is important because, while both lower taxable income, the amount reduced can vary.
Furthermore, in 2017, the Tax Cut and Jobs Act (TJCA) was signed, nearly doubling the standard deduction and restricting many itemized deductions from 2018 through 2025. This law simplified the deduction process for many taxpayers who itemized deductions in past years, but still added new factors to consider when choosing a deduction method.
This being the case, understanding the differences between these options and when to use each can help you maximize your tax savings.
When to consider taking the standard deduction:
When to consider itemizing:
In conclusion, the choice to take the standard deduction or itemize your deductions depends on your individual circumstances. Determining the size of your itemized deductions, the amount of record-keeping you are willing to do, and the deductions that you are eligible for can be a difficult task, but it is important. Therefore, we recommend consulting with a financial advisor and tax professional to help you make the best decision to maximize your tax situation.