Should You Take the Standard Deduction on Your Tax Return?
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Here's your money briefing for Thursday, January 18th. I'm J.R. Whelan for The Wall Street Journal. January 29th marks the start of the tax filing season. And as people crunch their numbers, they'll face the question, should I itemize my deductions or take the standard deduction?
Maybe they don't have a lot of state taxes to deduct or they don't own a house with a big mortgage or they've paid off the mortgage. So in many cases, the standard deduction could be a better deal than itemizing your deductions on Schedule A. It could not only be a better deal, it could be less trouble.
We'll talk to Wall Street Journal reporter Laura Saunders after the break.
The start of the tax filing season this month means finding ways to lower your tax bill and deciding whether to itemize your deductions or take the standard deduction. Wall Street Journal reporter Laura Saunders joins us with some answers. Laura, what is the standard deduction and what is its purpose?
Well, it's to save you a lot of trouble. Taxpayers have a choice. They can either list all their deductions on Schedule A. That would be for medical expenses and state taxes and also your mortgage interest and things like that. Or you can take one standard amount and save yourself all that trouble.
What is the standard deduction and why does it exist?
What is the amount of the standard deduction for people doing their taxes this year?
For 2023 tax year, which is the taxes that you're doing now, it's $13,850 for single filers and $27,700 for married joint filers.
Why would somebody not break out or itemize their deductions and go with the standard deduction?
because the standard deduction could save them more money. Maybe they don't have a lot of state taxes to deduct, or they don't own a house with a big mortgage, or they've paid off the mortgage. So in many cases, the standard deduction could be a better deal than itemizing your deductions on Schedule A. It could not only be a better deal, it could be less trouble. Ever since the 2017 tax overhaul nearly doubled the standard deduction, more and more people have taken it. It used to be that about one-third of taxpayers itemized deductions. Now only 10% do. And so everybody else, that's about 90%, take the standard deduction because it's a better deal for them.
How would a standard deduction, if somebody takes it, affect their state taxes?
Some states require that you have to do for the state whatever you did for the feds so that if you itemize on the federal return, maybe you have to itemize on the state return and vice versa.
How much is the 2023 standard deduction for single and married filers?
So these decisions should not be made in isolation.
If somebody has a lot of medical expenses, how would that work into the math of choosing which way to go?
Well, you just look at what your total itemized deductions would be, including medical deductions, and then you see if that's better for you than taking a standard deduction. But I should warn you, you only can deduct medical expenses to the extent that they exceed 7.5% of adjusted gross income. And that is really quite a large number for a lot of people. In fact, often you don't really get to take a medical deduction often. Unless there are huge expenses like from nursing home costs, those would be deductible or maybe special ed tuition for a child with severe learning disabilities. You're getting into some really big numbers there.
And that would drive up the numbers potentially to 7.5% of your adjusted gross income?
You can only deduct the amount over 7.5%. So there's a kind of a big amount that drops out. It's worth checking, but it's not going to come from Band-Aids and contact lens solutions.
When is taking the standard deduction better than itemizing deductions?
Which deduction should someone over age 65 take?
A lot of people over 65 have paid off the mortgage on their houses, and they don't have a lot of other itemized deductions, so the standard deduction may make sense for them. In addition, you get an extra standard deduction if you're 65 or older. It's at least $1,500 per person and can be a little bit higher. So that's something to check, but often the math is going to push you into the standard deduction.
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