Standard Deduction vs. Itemization Analysis refers to the process of determining whether a taxpayer should take the standard deduction or itemize their deductions on their income tax return.
The standard deduction is a fixed dollar amount that reduces the income on which you are taxed. It varies based on filing status (e.g., single, married filing jointly) and is adjusted annually for inflation.
Itemization, on the other hand, involves listing individual deductions, such as mortgage interest, state and local taxes, charitable contributions, and medical expenses. Taxpayers can choose to itemize deductions only if the total amount exceeds the standard deduction.
The analysis requires comparing the total of itemized deductions to the standard deduction to determine which option would yield a lower tax liability. For example, if the total itemized deductions amount to $20,000 for a married couple filing jointly, and the standard deduction for that year is $25,100, it would be more beneficial to claim the standard deduction, as it provides a greater reduction in taxable income.
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