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Difference between Itemized Deduction and Standard Deduction

Itemized Deduction and Standard Deduction

Being a taxpayer, every individual wishes to reduce the tax liability as much as possible, and there is no better way to reduce your total tax liability by reducing your taxable income through deductions. Although, tax credits directly reduce the tax liability, yet, you can indirectly reduce your tax liability with the help of deductions allowed on your taxable incomes.
The Deduction is the amount that is allowable to be deducted from the income for tax purposes. It is important for a taxpayer to know that there are two different types of tax deduction, an itemized deduction and a standard deduction. The amount of itemized and the standard deduction is not always the same. In an itemized deduction, you can sum up all the expenses that are allowable as tax deductions, and subtract them from the income, whereas, in a standard deduction, you deduct the basic amount that is available to all the taxpayers.

When you calculate your tax liability, make sure you claim the deduction that provides you bigger tax break, and reduces your overall liability. Some taxpayers claim the standard deduction, while others have enough allowable expenses that can be deducted from their income, so they use itemized deductions. Let’s look at the definition of these deductions in detail, and see how they are different.

Itemized Deduction

As already discussed, itemized deduction is the list of expenses that are allowable for tax purposes to be deducted from the amount of total taxable income. These may include, premiums paid for medical insurance, payment made to physicians, losses due to casualty or theft, mortgage interest payment, charitable contributions, and other miscellaneous deductions. If the total amount of itemized deductions is more than the standard deduction, a taxpayer can choose to benefit by itemizing.

Standard Deduction

Standard deduction, on the other hand, is a particular amount that is deducted to decrease the amount of income chargeable to tax. The deductible amount depends entirely on the filing status of a taxpayer, and increases every year to incorporate the effect of inflation. For example, a deductible amount for a person with single status is different from the person who is married, or someone who is widowed. However, you can only claim this deduction if you have not claimed for itemized deduction. Moreover, it is necessary for a person to be a citizen of the US, a head of household, or a single or married resident individual.

Standard deduction cannot be claimed by the non-resident aliens. If the individual is blind, or is older than 65 years old, he or she can be eligible for a higher amount of standard deduction.

DIFFERENCES

Schedule A Requirement – You are required to use ‘Schedule A’ in order to claim itemized deductions. A taxpayer has to fill the Form 1040 along with the schedule A, and should provide the required documents of the items claimed for deduction. It is the United States Income Tax form that is used by the taxpayers to report the deductions, so that the overall federal tax liability can be reduced. However, a taxpayer cannot use Form 1040EZ for this deduction.

On the other hand, there is no requirement to use Schedule A to claim the standard deductions, and a taxpayer can use Form 1040EZ in case of standard deduction.

Eligibility Criteria – As already discussed, non-residents are not allowed to claim the standard deductions. However, itemized deductions can be claimed by all the taxpayers.

Alternative Minimum Tax – Some of the items that are claimed as deductions decrease the income that is subject to alternative minimum tax (AMT), whereas, standard deduction cannot decrease the income subject to AMT.

Documentation – If you choose the itemized deduction, you are required to provide all the relevant documentation of the items that are claimed for deduction. However, there is no documentation requirement for the standard deduction.


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