Paying taxes may be inevitable, but deductions can help to reduce the amount you are required to pay. Before the Tax Cuts and Jobs Act of 2017, individuals could take an exemption of $4,050 per person. However, with the passage of this act, the standard deduction is now the primary way to minimize what you owe.
The Standard Deduction
The standard deduction is a pre-established subtraction that taxpayers can take while filing. The 2018 tax year saw a near doubling of the standard deduction in order to make up for the reduction of personal exemptions. The 2023 standard deduction for taxes filed in 2024 is:
- $13,850 for single filers and those married filing separately
- $27,700 for those married filing jointly
- $20,800 for heads of household
While itemizing can provide taxpayers with significant savings on their tax returns, it is important to weigh the pros and cons of standard deductions before choosing which path to take.
Pro: It’s Easy and Convenient
The primary benefit of the standard deduction is that it makes tax filing easier. This saves taxpayers time and inconvenience. Instead of tracking and documenting every deduction, taxpayers only need to keep basic records like their W-2 or 1099. Furthermore, the standard deduction amount is determined by the taxpayer’s filing status — single, married filing jointly, widow — so taxpayers don’t have to worry about which deductions to claim.
Pro: Some May Qualify for a Bigger Deduction
Another pro of the standard deduction is that some taxpayers may be eligible for a higher amount of deductions. Taxpayers in certain situations, such as those who are blind, over 65, or declared as a dependent may qualify for an increased amount of the standard deduction. These situations could result in a tax break if the increased amount of the standard deduction is more than what the taxpayer would receive as itemized deductions.
Pro: Anyone Can Claim It
Finally, anyone can claim the standard deduction regardless of one’s financial situation or work status. It can be of use to those who don’t own a home, have no medical expenses, and only have a few receipts to document deductions. Since it has been indexed to inflation, receiving a sizable deduction may even be possible. The standard deduction is also helpful for part-time freelancers or other taxpayers with sporadic income. Therefore, the standard deduction is a great way for anyone to save money on taxes.
Con: You Can’t Claim More Expenses
One major disadvantage of using the standard deduction is that it limits the deductions that can be claimed. While the standard deduction provides a set deduction amount for taxpayers, it does not account for any other potential deductions that may be available. This means that taxpayers may be missing out on deductions that could save them more money when filing their taxes. For example, if a taxpayer has incurred medical expenses, they may find that the deductions they could have made for them are more than the value of the standard deduction.
Con: You Can’t Save More Money
Another issue with the standard deduction is that taxpayers are unable to itemize their deductions to save more money in taxes. Filing taxes using itemized deductions allows taxpayers to break down each individual deduction they qualify for. Therefore, individuals can save more money in taxes. Without the ability to itemize the deductions when using the standard deduction, taxpayers are limited in the deduction amounts they are able to claim. This could lead to taxpayers paying more in taxes than they otherwise would if they had been able to itemize their deductions.
In conclusion, when it comes to filing taxes, consider the pros and cons of standard deductions and assess how they could affect your tax return. While itemizing can provide taxpayers with significant savings, it also involves additional time and paperwork. Therefore, carefully look at your financial situation and review all documentation necessary before deciding to itemize deductions.