Banking and Finance

Standard Deduction vs. Itemized Deduction: Which Should I Take?

July 27, 2021

Tired of thinking about taxes? We feel ya. As the weather turns warmer and the world (quite literally) begins to brighten up, we all have to face what’s coming for us: Tax Day 2022. However, you don’t have to be scared of it!

In fact, filing your taxes is quite easy these days and there are tons of different ways that you can file your taxes for free. However, part of that still requires you to understand what you can deduct on your taxes in order to get the biggest refund possible (or, at least, to lower your taxable income as much as possible).

Our biggest advice? Understand the difference between a standard deduction vs. itemized deduction. Most people take the standard deduction because it’s easier. However, that doesn’t mean it’s always best for you. Here’s what to know.

What is the Standard Deduction for 2022?

For tax year 2021 (the taxes you’ll be filing by April 18th of this year, 2022), the standard deduction is as follows, depending on your filing status:

  • $12,950 for single filers and married filing separately
  • $25,900 for joint filers
  • $19,400 for head of household

What does this even mean? Well, when filing your taxes, you get the option of either claiming or itemizing your deductions (expenses such as mileage for work, medical trips, other work-related costs and investments) or taking the standard deduction. Because most workers don’t ever track their deductions throughout the year or don’t meet the limit of $12,950, they simply take the standard deduction.

This means that, if you’re a single taxpayer, you’ll get $12,950 deducted from your taxable income, thereby lowering your overall tax bill. Yay! However, if you’re a self-employed worker, business owner, or have complicated taxes, you might benefit from itemizing your deductions. Here’s what that means…

What Does Itemized Deduction Mean?

Investopedia’s definition of itemized deduction is actually really helpful here. It states that:
An itemized deduction is an expense that can be subtracted from adjusted gross income (AGI) to reduce your tax bill.

Pretty much the same as what we explained about standard deductions above, right? Yep. The only difference is that you’re the one itemizing those as list items on Form 1040, Schedule A.

You mean you have to write down every deduction as a line item? Yep, unfortunately you do. That’s why most people take the standard deduction. Unless you’ve kept good records of your deductions throughout the year, which can include certain medical expenses, mortgage interest, property taxes, state taxes, and more, you probably don’t even know what you can deduct.

Work From Home Tax Deductions & More 2022

Thinking of itemizing your deductions instead of taking the standard $12,950 as a single taxpayer? Okay, great. Now it’s time to figure out what you can deduct. There are a few common expenses that you can deduct if you’re self-employed, for example, which include:

  • Office supplies
  • Credit card processing fees
  • Business equipment (laptops, printers, etc.)
  • Office rentals
  • Subscription services related to your work
  • Retirement plan contributions
  • Advertising costs
  • 100% of the health insurance premiums that you pay monthly for yourself

However, if you’re a regular employee who works for a company 9-5 and receives a W2 at the end of each tax year, what can you deduct? Some of the most common tax deductions for people in your situation include:

  • Charitable contributions
  • Property taxes
  • State taxes
  • Mortgage interest
  • Mortgage insurance costs
  • Student loan interest

Other deductions occur in the form of credits. Two of the most popular credits are the Lifetime Learning Credit and the American Opportunity Tax Credit. With each of these, you’re able to deduct either $2,500 or up to $10,000 on qualifying educational expenses for taking classes at a higher education institution. Click on each of the links above to learn more about the qualifications and requirements to claim each one.

Standard Deduction vs. Itemized Deduction: Which Should I Take?

If you’ve made it this far then you’re probably just interested in knowing which option is right for you. Standard deduction vs. itemized deduction…how can you best lower your tax bill?

The answer depends on your individual situation. Ultimately, most workers will benefit more from simply taking the standard deduction. If you haven’t been tracking your expenses all year then you’re not likely to be able to accurately report them on your tax return. Furthermore, it takes quite a bit of time to sit down and organize all of those deductions into the right categories. 

Unless you have a qualified CPA working for you, it’s likely going to cause a lot more headache than it’s worth. Keep in mind that you will also need to show proof of at least $12,950 in deductions to make itemized deductions even worth it. If you don’t reach that limit, you’ll save more by taking the standard deduction.

If you’re a small business owner, self-employed worker, or have complicated taxes, we suggest itemizing your deductions. For small business owners specifically, there’s a high chance that you’ll far exceed the $12,950 standard deduction limit, which means that you’ll benefit more from deducting your real expenses.

Track Your Expenses with Cheese

Did you know that, if you have a Cheese Debit Card, you’re able to download the Cheese Mobile Banking App and track all of your transactions. This means that, if you eventually do decide to itemize your tax deductions and claim everything yourself, you’ve got a handy summary of everything you’ve purchased throughout the year.

Of course, we also suggest utilizing the services of a professional CPA and perhaps a nifty spreadsheet so that you can categorize your expenses. However, for everything else, we’re here for you!

Don’t have a Cheese Debit Card yet? Click here to sign up to open your account today.