Standard vs. Itemized Deductions

Do you know the difference between taking the standard deduction and itemized deductions? It can be helpful in understanding your tax return and planning for taxes to know when you would itemize deductions instead of taking the standard deduction. The standard deduction is a dollar amount, adjusted for inflation each year, by which every American taxpayer gets to reduce their income to calculate their tax liability. The idea of the standard deduction was introduced in the 40's to simplify tax preparation - instead of having to tabulate piles of receipts, taxpayers could just take the $500 standard deduction. In 2022 the standard deduction has increased to $25,900 for a couple under 65. They can take that deduction without tracking or documenting a single penny of deductions. On the other hand, some people have much higher deductions than that, and find it is worth the extra hassle to track and document those receipts. This is called "itemizing" deductions. Expenses that can be included are significant medical expenses, state and local taxes subject to a $10,000 cap, mortgage and investment interest, charitable contributions, and other less common expenses. Understanding whether and how much your itemized deductions would be compared to your standard deduction will save you time and money.