What the Standard Deduction and Itemized Deductions Are

Every taxpayer who files a federal income tax return must choose between two methods of reducing their taxable income: the standard deduction or itemized deductions. This choice appears on Form 1040 between lines 12 and 13. Taxable income is calculated by subtracting whichever deduction method the taxpayer selects from their adjusted gross income (AGI). The result is the amount that gets taxed at the applicable federal income tax rates.

The standard deduction is a fixed dollar amount set by the IRS each year. For the 2024 tax year, the standard deduction is $14,600 for single filers, $29,200 for married filing jointly, $21,900 for head of household, and $14,600 for married filing separately. Taxpayers aged 65 or older or who are blind receive additional standard deduction amounts. The standard deduction requires no documentation and no calculation. It is simply a flat amount subtracted from AGI.

Itemized deductions, reported on Schedule A of Form 1040, allow taxpayers to deduct specific expenses they actually incurred during the year. The total of all itemized deductions is compared to the standard deduction, and the taxpayer benefits from whichever amount is larger.

What Expenses Can Be Itemized

Schedule A includes several categories of deductible expenses. The most significant for most taxpayers are:

• State and local taxes (SALT): This includes state and local income taxes (or state and local sales taxes as an alternative) plus property taxes. The total SALT deduction is capped at $10,000 per return ($5,000 for married filing separately). This cap, introduced by the Tax Cuts and Jobs Act of 2017, significantly reduced the benefit of itemizing for taxpayers in high-tax states like New York and California.
• Mortgage interest: Interest paid on mortgage debt up to $750,000 ($375,000 for married filing separately) used to acquire, build, or substantially improve a primary or secondary residence is deductible. Mortgages originated before December 16, 2017 may qualify under the previous $1,000,000 limit.
• Charitable contributions: Cash donations to qualified organizations are generally deductible up to 60% of AGI. Donations of appreciated property (such as stock) are deductible at fair market value up to 30% of AGI. All charitable deductions require proper documentation, with stricter substantiation requirements for donations above $250.
• Medical and dental expenses: Unreimbursed medical expenses that exceed 7.5% of AGI are deductible. This threshold means that only taxpayers with very high medical costs relative to their income benefit from this deduction.
• Casualty and theft losses: Only losses attributable to a federally declared disaster are deductible, and they must exceed $100 per event plus 10% of AGI.

Why Most Taxpayers Take the Standard Deduction

Since the Tax Cuts and Jobs Act nearly doubled the standard deduction beginning in 2018, the majority of taxpayers find that the standard deduction exceeds their total itemizable expenses. According to IRS statistics, approximately 87% of taxpayers now claim the standard deduction. The SALT cap at $10,000 was a major factor: prior to the cap, many homeowners in high-tax states could itemize state income taxes, property taxes, and mortgage interest for a total well above the standard deduction. With the cap in place, the math shifted for millions of filers.

However, taxpayers with large mortgage balances, significant charitable giving, or extraordinary medical expenses may still benefit from itemizing. The only way to know for certain is to calculate both the standard deduction and the total of itemized deductions and compare them. Tax preparation software performs this comparison automatically and selects the more favorable option.

The SALT Cap and Its Impact on New York Taxpayers

The $10,000 SALT cap has an outsized impact on taxpayers in New York, New Jersey, Connecticut, and California, where state and local tax burdens are among the highest in the nation. A New York City resident earning $200,000 may pay $12,000 or more in state and city income taxes alone, plus $10,000 to $20,000 in property taxes. Before the cap, the full amount of these taxes was deductible. Now, only $10,000 of the combined total can be deducted on Schedule A. This change alone eliminated the itemizing advantage for many taxpayers in the New York metropolitan area.

At The Reed Corporation, we regularly evaluate whether clients benefit from itemizing given their specific tax profile. For clients near the threshold, strategies like bunching charitable contributions (making two years of donations in a single year to exceed the standard deduction, then taking the standard deduction the following year) can produce meaningful tax savings over a two-year cycle.

Special Rules and Considerations

Several special rules affect the standard deduction choice. Taxpayers who are claimed as dependents on another person’s return receive a reduced standard deduction, limited to the greater of $1,300 or earned income plus $450 (up to the regular standard deduction amount). Married taxpayers filing separately face a coordination rule: if one spouse itemizes, the other spouse must also itemize and cannot claim the standard deduction, even if the standard deduction would be more beneficial.

Nonresident aliens are generally not eligible for the standard deduction and must itemize (though their itemizable expenses are often limited). Estates and trusts also cannot claim the standard deduction. These rules occasionally create situations where filing status selection and deduction method interact in ways that require careful analysis to optimize the overall tax result.

Above-the-Line Deductions Are Separate

It is important to distinguish the standard deduction and itemized deductions from above-the-line deductions (adjustments to income on Schedule 1). Deductions such as student loan interest, educator expenses, health savings account contributions, self-employed health insurance premiums, and the deductible portion of self-employment tax are subtracted from gross income to arrive at AGI regardless of whether the taxpayer itemizes or takes the standard deduction. These adjustments benefit all eligible taxpayers and are not part of the itemizing decision.

← Back to Reed Corporation