A deduction refers to an amount of money that can be subtracted from your income to reduce your total tax liability. You can claim either a standard deduction or an itemized deduction, but you cannot claim both. Therefore, understanding the difference is crucial as you prepare for your upcoming tax filing.
How Does Standard Deduction Work?
The standard deduction is a set dollar amount that reduces your taxable income. This deduction is available to everyone filing their taxes, and the deduction amount depends on your filing status.
For 2024 the standard deductions are the following:
Single
Married Filing Jointly
Head of Household
When you file your taxes, your corresponding amount will be subtracted from your income, reducing your tax liability. Standard Deduction is a great option for those who do not have significant deductible expenses such as medical bills or mortgage interest payments. On the other hand, if you have a significant amount of deductible expenses, claiming Itemized Deductions may be a better option when filing your taxes.
How Do Itemized Deductions Work?
Itemizing deductions allows you to list all your itemized deductions and add them together to come up with your total deduction amount. This requires more work than taking the fixed Standard Deduction. However, it could lead to significant tax savings if you have a large amount of itemized deductions.
- Medical and Dental Expenses
- Gambling Losses
- Mortgage Interest
- State and Local Taxes
- Charitable Contributions
- Casualty and Theft Losses
- Investment Interest Expense
Understanding the difference between standard and itemized deductions is important for optimizing your tax savings. The standard deduction provides more simplicity. However, for those with significant expenses, itemizing deductions may be more beneficial. If you would like to learn more or need help planning for your upcoming tax filing, please contact us and we will be happy to guide you!
Javier Ahumada, MBA
Javier brings a unique perspective to our team. Serving as an Accountant I, he plays a crucial role in providing expertise in tax, assurance, and client accounting services. Javier is continually learning new methods to assist our clients in achieving their financial goals and optimizing their business operations.
