Tax Glossary
Key Tax TermDeduction (Standard & Itemized)
A deduction reduces the amount of income the IRS taxes. You can take either the standard deduction or itemize your deductions–but not both. The goal is always to choose the option that lowers your taxable income the most.
💡Simple definition
A deduction lowers your taxable income. The IRS gives you two choices each year:
- 1.Standard deduction: A flat amount everyone gets.
- 2.Itemized deductions: A list of actual expenses (like mortgage interest, medical bills, donations) you can subtract instead.
📋Standard deduction
The standard deduction is a fixed dollar amount that reduces your taxable income. It depends on your filing status (Single, Married Filing Jointly, etc.).
Benefits of the standard deduction:
- ✓Simple — no receipts needed
- ✓Most people qualify
- ✓Often larger than itemizing for average taxpayers
📝Itemized deductions
Itemizing means listing specific deductible expenses. You only itemize if your total itemized deductions are more than the standard deduction.
Common itemized deductions include:
- •Mortgage interest
- •State & local taxes (SALT)
- •Charitable donations
- •Medical expenses above certain limits
- •Property taxes
You list these on Schedule A, which attaches to your federal tax return.
🤔Should you take the standard deduction or itemize?
A simple rule:
Choose whichever deduction gives you the bigger number.
You should consider itemizing if you:
- ✓Own a home with a big mortgage
- ✓Have high property taxes
- ✓Gave large charitable donations
- ✓Had high medical expenses
🧮Quick example
Your standard deduction:
$14,000
Your itemized deductions total:
- •Mortgage interest: $6,000
- •State & local taxes: $3,000
- •Charitable donations: $1,500
Total itemized = $10,500
Decision:
$10,500 is less than $14,000
→ Take the standard deduction
⭐Why deductions matter
Deductions lower your taxable income, which reduces the amount of tax the IRS charges you.
Lower taxable income → Lower tax bill.
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