Tax deductions reduce your taxable income, putting more money back in your pocket. But choosing between the standard deduction and itemizing can feel like a high-stakes guessing game. Here’s how to maximize your savings, no matter which path you take.
Standard Deduction: Quick and Easy
For most taxpayers, the standard deduction is the simpler (and smarter) choice. For 2023, the amounts are:
Single/Married Filing Separately: $13,850
Head of Household: $20,800
Married Filing Jointly: $27,700
When to Stick with Standard:
Your itemizable deductions (mortgage interest, medical expenses, charity, etc.) don’t exceed the standard amount.
You want to avoid paperwork and receipts.
Maximize It By:
Bunching Deductions: Time expenses to alternate years. For example, prepay 2024 charitable donations in 2023 to itemize this year and take the standard deduction next.
Boost Retirement Savings: Contributions to traditional IRAs or 401(k)s lower your AGI, indirectly enhancing the standard deduction’s value.
Claim Above-the-Line Deductions: Student loan interest, educator expenses, or HSA contributions reduce AGI before applying the standard deduction.
Itemized Deductions: Dig Deeper for Savings
Itemizing makes sense if your eligible expenses exceed the standard deduction. Key categories include:
State and Local Taxes (SALT): Deduct up to $10,000 for property, income, or sales taxes.
Mortgage Interest: Deduct interest on loans up to
750
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000
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r
750,000(or1M for pre-2018 mortgages).
Charitable Contributions: Deduct up to 60% of AGI for cash donations (keep receipts!).
Medical Expenses: Deduct costs exceeding 7.5% of AGI (premiums, prescriptions, mileage).
Maximize Itemizing By:
Bundle Medical Expenses: Schedule elective procedures or stock up on prescriptions in a single year to cross the 7.5% AGI threshold.
Leverage Donor-Advised Funds (DAFs): “Bunch” multiple years of donations into one year to exceed the standard deduction.
Track Miscellaneous Costs: Casualty/theft losses (federally declared disasters only) or gambling losses (up to winnings).
Hybrid Strategies for Borderline Cases
If you’re close to the standard deduction threshold, try:
Adding Deductible Expenses: Prepay property taxes or January’s mortgage payment in December.
Claiming State Credits: Some states offer tax breaks for charitable gifts, even if you take the standard deduction federally.
Avoid These Pitfalls
Overlooking Smaller Deductions: Union dues, tax prep fees (for self-employed), or unreimbursed job expenses (armed forces reservists, performing artists).
Ignoring Phaseouts: High earners may lose some deductions (e.g., SALT cap).
Guessing Numbers: Use tax software or a CPA to compare standard vs. itemized outcomes.
Final Tips
Keep Impeccable Records: Save receipts, mileage logs, and acknowledgment letters for donations over $250.
Reassess Annually: Life changes (buying a home, medical issues) can shift your optimal strategy.
Use Free Tools: IRS’s Interactive Tax Assistant or apps like TurboTax compare deductions automatically.
Bottom Line
The standard deduction is ideal for simplicity, while itemizing rewards meticulous taxpayers with higher expenses. Whichever you choose, the key is to claim every dollar you’re owed. As tax attorney Kelly Phillips Erb says, “Deductions aren’t loopholes—they’re incentives.” By planning strategically and staying organized, you can turn those incentives into real savings.