The Pros and Cons of Taking the Standard Deduction

When filing your tax return, you have two options: take the standard deduction, or itemize your deductions. The choice you make depends on which you believe will generate the largest tax return, or resultin the smallest amount of money owed to the government.

There are some advantages and disadvantages associated with taking the standard deduction. After the Tax Cuts and Jobs Act went into effect for the 2018 tax year, a larger percentage of people than ever are taking the standard deduction, as it doubled in size.

Here’s a quick look at some of the pros and cons of the standard deduction.

Pros

1. It’s easy: If you want to make your taxes as quick and easy as possible, you can take the standard deduction andavoid all the extra paperwork and math that goes along with itemizing. It’s basically an automatic deduction that allows you to avoid having to go in depth with all of the nuances of the tax code.
2. Anyone can take it: You don’t have to worry about your income amount or expenses—anyone is allowed to take the standard deduction.
3. Larger deductions: There are some people who might be eligible for increases in the standard deduction they get based on their age or disability status. For example, taxpayers older than 65 or taxpayers who are blind can receive additional, substantial amounts of money in their standard deduction, depending on the filing status they use.

Cons

1. Possible smaller deductions: There is a possibility for some people that the standard deduction could be smaller than what you get if you take the time to itemize. If you know you have a lot of mortgage interest, real estate taxes, charitable contributions, qualified businesses expenses and other deductible expenses that could significantly reduce your tax liability, you might miss out on a bunch of cash by taking the standard deduction. It might take you more time and require the assistance of a professional, but it’s worth it if you’re going to get more back from itemizing.
2. Potential filing limitations: There are some circumstances in which you’re not allowed to take a standard deduction. For example, people who are married but filing separately cannot claim the standard deduction if their spouse itemizes. Nonresident aliens, dual-status aliens or people filing tax returns for less than a year are also not eligible for the standard deduction. People who can be claimed as a dependent on someone else’s taxes might also have limited deductions available to them.

For more information about whether the standard deduction or itemized deductions are best for your financial situation, we encourage you to contact our tax prep professionals at MCG Solutions.