The IRS Is Supersizing Standard Deductions For 2023. Is That Good For Your Taxes? (2024)

FAQs

What is the biggest drawback of itemizing taxes? ›

Unlike standard deductions, itemizing is a manual process. You have to be able to document every itemized deduction. Depending on how good your records are and the amount of your deductions, this time-consuming process might not reduce your taxable income enough to make it worth the effort.

You should itemize deductions if your allowable itemized deductions are greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction. You may be able to reduce your tax by itemizing deductions on Schedule A (Form 1040), Itemized Deductions.

Per the IRS, you can generally deduct up to 60% of your adjusted gross income. (How it works.) In general, you can deduct qualified, unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year. (How it works.)

If the value of expenses that you can deduct is more than the standard deduction (as noted above, for the tax year 2022 these are: $12,950 for single and married filing separately, $25,900 for married filing jointly, and $19,400 for heads of households) then you should consider itemizing.

Disadvantages of itemized deductions

You might have to spend more time on your tax return. If you itemize, you'll need to set aside extra time when preparing your returns to fill out the big enchilada of tax forms: the Form 1040 and Schedule A, as well as the supporting schedules that feed into those forms.

If you are age 65 or older, your standard deduction increases by $1,850 if you file as single or head of household. If you are legally blind, your standard deduction increases by $1,850 as well. If you are married filing jointly and you OR your spouse is 65 or older, your standard deduction increases by $1,500.

For most people, the new standard deduction lowers taxable income by much more than itemized deductions. And that means it saves you more money on your taxes! About 87% of taxpayers now use the standard deduction instead of itemizing.

Taxpayers typically choose to itemize when they can claim more on itemized deductions than on the standard deduction. In recent years, about 30 percent of taxpayers chose to itemize (figure 1).

Is it better to have a higher standard deduction? ›

Taking the standard deduction might be easier, but if your total itemized deductions are greater than the standard deduction available for your filing status, saving receipts and tallying those expenses can result in a lower tax bill.

Are Social Security benefits taxable regardless of age? Yes. The rules for taxing benefits do not change as a person gets older. Whether or not your Social Security payments are taxed is determined by your income level — specifically, what the Internal Revenue Service calls your “provisional income.”

Are Homeowners Insurance Premiums Tax Deductible? In general, they are not. If you use your home as a home – without a home office or deriving any income from it – your expenses, including insurance premiums, are not deductible.

The 2023 Income Tax Brackets (Taxes due April 2024)

The 2023 tax year will have the same seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income, including wages, will determine the bracket you're in.

Example 2: Ellen is single, over the age of 65, and not blind. For 2022, she'll get the regular standard deduction of $12,950, plus one additional standard deduction of $1,750 for being a single filer over age 65. Her total standard deduction amount will be $14,700.

Medicare Part B

Part B premiums are tax-deductible based on age and tax year, which constitutes the total medical cost and must bypass either 7.5% of the members AGI or 10% of the members AGI.

You'll need to itemize your deductions to claim the mortgage interest deduction. Since mortgage interest is an itemized deduction, you'll use Schedule A (Form 1040), which is an itemized tax form, in addition to the standard 1040 form.

According to the JCT, high-income taxpayers will claim 52 percent of the state and local tax deduction, 84 percent of the charitable donation deduction, and 60 percent of the mortgage interest deduction.

What is the downside of deduction? ›

You might lose money on certain deductions.

The standard deductible amount might be lower than the amount you could deduct if you itemized. If you're a homeowner, for example, the standard deduction might be less than the total amount of mortgage interest or real estate taxes you've paid and could deduct.

Health insurance premiums are deductible on federal taxes, in some cases, as these monthly payments are classified as medical expenses. Generally, if you pay for medical insurance on your own, you can deduct the amount from your taxes.

Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age.

Taxpayers can claim a standard deduction when filing their tax returns, thereby reducing their taxable income and the taxes they owe. In addition to the regular standard deduction, taxpayers can claim an additional deduction if they or their spouse are 65 or older or blind.

Standard deductions ensure that all taxpayers have at least some income that is not subject to federal income tax. The standard deduction amount typically increase each year due to inflation. You usually have the option of claiming the standard deduction or itemizing your deductions.

The results of a new GOBankingRates survey of 1,000 American adults from all over the country found that just 17.3% of respondents plan to take the standard deduction, which means that more than four out of five taxpayers plan to itemize. Are they making the right decision?

Senior citizens are allowed a standard deduction of ₹50,000 on account of their pension income.

Are tax rates changing in 2023? ›

For most Americans, that's their return for the 2022 tax year — which will be due on April 18, 2023 (or October 16, 2023, if you request a tax filing extension next year). When it comes to federal income tax rates and brackets, the tax rates themselves aren't changing from 2022 to 2023.

Standard Deduction for Seniors – If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind.

The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.

If you're a freelancer, a small business owner, or otherwise self-employed, you can likely deduct at least part of your internet bill. If you're a W-2 employee who works remotely, you can't.

If you're eligible, you may be able to deduct a portion of your homeowners association fees, utility bills, homeowners insurance premiums and the money you used to repair your home office. The amount you can deduct depends on several factors, including the percentage of your home that's used exclusively for business.

The commission verifies receipts for accuracy during audit processes. If existing records don't substantiate items in your tax return, the Internal Revenue Service sends an audit notice requesting additional information to support your claims.

Nondeductible Home Expenses

Fire insurance. Homeowner's insurance premiums. The principal amount of mortgage payment. Domestic service.

In general, homeowners association (HOA) fees aren't deductible on your federal tax return. There may be exceptions, however, if you rent the home or have a home office. Additionally, an HOA capital improvement assessment could increase the cost basis of your home, which could have several tax consequences.

Can I put my car insurance on my tax return? ›

If you use your car strictly for personal use, you likely cannot deduct your car insurance costs on your tax return. Unless you use your car for business-related purposes, you are likely ineligible to claim your auto insurance premium on your tax return.

"Refunds may be smaller in 2023," the IRS said in a November news release about preparing for the upcoming tax season. "Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no economic impact payments for 2022."

We call this annual limit the contribution and benefit base. This amount is also commonly referred to as the taxable maximum. For earnings in 2023, this base is $160,200. The OASDI tax rate for wages paid in 2023 is set by statute at 6.2 percent for employees and employers, each.

Itemized deductions include a range of expenses that are only deductible when you choose to itemize. Common expenses include: Mortgage interest you pay on up to two homes. Your state and local income or sales taxes.

The standard deduction: Allows you to take a tax deduction even if you have no expenses that qualify for claiming itemized deductions. Eliminates the need to itemize deductions, like medical expenses and charitable donations. Lets you avoid keeping records and receipts of your expenses in case you're audited by the IRS.

Saving tax with deductions

Frequently claimed deductions cover the cost of tuition and fees, medical expenses, charitable contributions and state income taxes. Another benefit to a deduction is that it reduces income subject to the highest tax brackets first.

Key Takeaways. A deduction is an expense that can be subtracted from taxable income to reduce the amount owed. Most taxpayers who take the standard deduction only need to file Form 1040. Taxpayers who itemize deductions must use Schedule A Form 1040 to list all of their allowable deductions. 1.

dē- : an act of taking away. deduction of legitimate business expenses. : something that is or may be subtracted. deductions from his taxable income.

What are the disadvantages and disadvantages of planning? ›