Standard Vs. Itemized Deduction - 2021 | Best Guide - CPA Clinics
The standard deduction reduces taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, taxes, interest, and charitable contributions, on Schedule A (Form 1040). The standard deduction is increased by an additional amount for taxpayers who are 65 or older, or are blind.
The basic standard deduction for 2021 is:
Age 65 and/or blind. The additional amounts for age 65 or older and/or blind, per person, per event in 2021 are:
Dependent. The standard deduction in 2021 for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100, or earned income plus $350.
Taxpayers must decide whether to itemize deductions or to use the standard deduction. Generally, taxpayers should itemize deductions if the allowable itemized deductions are greater than the standard deduction. Some taxpayers must itemize deductions because they cannot use the standard deduction.
The standard deduction cannot be used if the taxpayer is:
A taxpayer may benefit from itemizing deductions on Schedule A (Form 1040), Itemized Deductions, if he or she:
Taxpayers may be subject to limitations on some itemized deductions.
– Amortizable premium on taxable bonds.
– Casualty and theft losses from income producing property.
– Federal estate tax on income in respect of decedent.
– Impairment related work expenses for persons with disabilities.
– Losses from Ponzi type investment schemes.
– Repayments of more than $3,000 under a claim of right.
– Certain unrecovered investment in a pension.
In addition, a taxpayer with a net qualified disaster loss, who is not itemizing deductions, can claim an increased standard deduction.
Certain expenses are not deductible as itemized deductions, including all miscellaneous itemized deductions previously subject to the 2% AGI limitation.
Some taxpayers may decide to take the standard deduction even if the itemized deduction is higher. Conversely, a taxpayer may choose to take the itemized deduction in a lesser amount than the standard deduction.
Example #1: David, 45, is single, has AGI of $100,000, and has the following itemized deductions:
Even though his itemized deductions are greater than the standard deduction by $75 ($12,625 minus $12,550), David chooses to take the standard deduction because he was not able to locate receipts to substantiate all of his charitable contributions.
Example #2: Assume the same facts as Example #1, however David has no charitable contributions. His total itemized deductions are now $325 less than the standard deduction ($12,625 minus $400 charitable contribution equals $12,225. David’s standard deduction is $12,550). David chooses to file with the lower itemized deductions because the tax benefit of itemizing on his state return is greater than the tax benefit he loses on the federal return by not taking the standard deduction.
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