Difference between Itemized Deduction and Standard Deduction

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In the U.S, couples or individuals filing tax returns jointly are given alternatives when making preparations for Federal tax returns on their income. Once they calculate the Adjusted Gross income, tax payers then proceed to itemize these deductions from an allowable items listing and net off these itemized deductions from the amount of AGI before arriving at the amount of taxable income.

Alternatively, they may choose to net off the standard deduction for their status of filing together with any other personal deduction applicable in order to arrive at the taxable income.

In general, the tax payer may deduct the whole amount of itemized deduction or the amount of standard deduction, whatever is greater.

Standard deduction

This refers to a particular dollar amount that can be deducted from your income in a bid to have the taxable income reduced. The standard deduction amount depends on an individual’s filing status and is increased annually for purposes of adjusting inflation. A person is eligible for standard deduction if he has not itemized his deduction, is a citizen of the US, a single or married alien or even a household head. Aliens who are nonresidents do not qualify for standard deduction. One is only eligible for an amount of higher standard deduction if he meets special particular criteria. For example, on attaining 65 years old or becoming blind.

Itemized deductions

These refer to the expenses that can be listed if belonging to a preset list of items allowable. These items that are allowable include doctors’ payments, premiums of medical insurance, medical equipment costs, among others.

 

Factors used to determine the application of standard and Itemized deduction

There are a number of factors that one is required to consider before determining whether or not to use standard deduction or itemized deduction. These include:

  • Standard deduction is not applicable to aliens who are nonresidents
  • Comparison has to be done between itemized and standard deduction; the larger the number, the better
  • The willingness of the tax payer in maintaining the required records in substantiating deductions that are itemized
  • In case the tax payer is filing the return as a married person and the spouse itemizes, he too is expected to itemize

Itemized deductions and standard deduction are important taxation law aspects. Proper calculation in both of them may clearly help in tax reduction. Thus, one can only choose to take the standard deduction or itemized deduction and not both of them.

Main Differences

Whether tax payers claim standard deduction or itemize the individual deductible expenses, the allowed deduction reduces the taxable income. However, the following are some of the main differences between standard deduction and itemized deduction

Requirement of Schedule A- When claiming deductions that are itemized, one must have ‘Schedule A’ requirement. Alongside schedule A, a taxpayer must fill Form 1040 and also provide the requisite documents of the claimed deduction items. The tax payer uses the US income tax form in reporting these deductions in order to minimize the federal tax liability. Nonetheless, for this deduction, tax payers are prohibited to use Form 1040EZ.

One is however not required to use Schedule A for purposes of claiming standard deductions. Instead, one uses Form 1040EZ.

Criteria of Eligibility – Standard deductions cannot be claimed by non- residents. On the other hand, all tax payers are allowed to claim itemized deductions.

Minimum Alternative Tax – Standard deduction does not decrease the income subjected to the minimum alternative tax whereas some items that are claimed as deductions minimize this amount.

Documentation – For itemized deduction, one must provide the relevant documentation of items being claimed. Nonetheless, no documentation is required for standardized deduction.

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