Standard Deduction vs. Itemized Deduction: Which One Should You Claim in Tax Season 2022?
Before 2018, American taxpayers could claim a personal exemption of $4,050 on their tax returns for themselves and every eligible dependent in the family. That got changed by the Tax Cuts and Jobs Act which did away with personal exemptions and introduced deductions as the primary way to reduce one’s taxable income. So, in the tax season of 2022, you have two basic options to reduce your tax burden apart from the additional tax credits and deductions that the IRS hands out. You can either claim a standard deduction or list itemized deductions.
Standard deduction – definition, pros, and cons
The standard deduction is similar to the personal exemption taxpayers once had. It allows you to reduce your net annual income by a certain amount to come to the adjusted taxable income which, in turn, is taxed by the IRS. The idea is to allow you to keep a portion of your income untaxed. All income above the standard deduction is considered for taxation.
For the tax year 2021, the standard deduction rate is kept at $12,550 for single filers, $25,100 for married joint filers, $12,550 for married but separate filers, and $18,800 for heads of households. Depending on your filing status, if your income is less than the stated figures, you are exempt from paying any taxes in 2022.
● Easiest to claim on tax returns; keeps the paperwork simple
● Perfect for taxpayers who do not have mortgages or other itemized expenses
● Almost any taxpayer can claim it; no complicated IRS rules
● You cannot claim the standard deduction if you are married and filing separately and your spouse goes for itemized deductions
● Does not cover your itemized expenses if you pay a huge mortgage or donate to charity
Itemized Deductions – definition, pros, and cons
Itemized deductions list five categories of expenses that you can report in your tax return to reduce your taxable income. You cannot claim the standard deduction and itemized deductions together. If you had the following expenses in the tax year 2021, you may claim them under itemized deductions on Schedule A attachment to IRS Form 1040.
● Medical and/or dental bills
● Any local or state taxes that you have paid
● Charitable donations
● Mortgage interests
● Loses related to any casualty or theft
For many taxpayers, the net itemized deductions amount to more than the standard deduction and they can benefit by reducing their taxable income by over $12,550 as a single filer.
● The option of including your expenses to claim a tax break
● You are more likely to get a tax refund from the IRS
● Complicated paperwork and documentation
● Each itemized deduction carries limits that you need to qualify for
Which one should you choose?
As an average taxpayer with basic expenses like any other American citizen, you are more likely to benefit by claiming the standard deduction. A majority of the taxpayers do not have that many itemized expenses to beat the rate of standard deduction. However, you may have to go for itemized deductions if your spouse refuses to go for standard deduction filing separately or if you are filing your tax return for less than a year. These are, in fact, exceptional cases and may not apply to you.
For the tax year 2021, it might make sense to look at itemized deductions as well. Especially if you had paid a massive medical bill due to the ongoing pandemic along with your local taxes and mortgage interests. List your itemized expenses and crosscheck with the standard deduction rate. For this year only, you might be able to claim a greater tax break by taking the itemized route.
Irrespective of what you choose, your motive is naturally to reduce your tax burden and get a refund from the IRS. And with the extra non-taxable cash that you get, you can finally fulfil a personal goal that has been pending for a long time. One such goal is to buy a used car in Anderson. You can actually start financing a quality vehicle with only a part of the tax refund money you get from the IRS.
Family Auto buy here pay here dealership in Anderson offers you easy bad credit financing. We do not bother about your credit score to approve your auto loan and in certain cases you may be eligible for a down payment of as low as just $500. On top of this, we have an unmatched trade-in policy that allows you to increase your down payment payable. And you get a comprehensive 2 years/36,000 miles warranty on the used car that you buy. If you intend to buy a used car with your tax refund money, Family Auto is your dealership.
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