When You Should Take an Itemized Deduction vs. Standardized

Roughly 70 percent of Americans do not know the difference between standard deduction vs. itemized. In fact, most don’t really understand how deductions work, to begin with. And as a result, 90 percent miss the opportunity to claim higher refunds through itemizing things like medical expenses, mortgage payments, and theft in their deduction. 

So, if you are counted among that group, do not feel bad. You are not alone. But to confidently know when you should take the standard deduction vs. itemized, we need to review the purpose of tax deductions and explain how they are used to calculate your tax bill. And then, in the following article, we’ll list the most overlooked deductions that will help both single and married couples claim the biggest refund.


Table of Contents

What is the Purpose of a Tax Deduction?

What are Tax Credits

How Do You Calculate Average and Marginal Tax Rates?

What is the Difference Between an Itemized and Standard Deduction?

Benefits of Choosing Standardized Deduction Vs. Itemized

How to Best Submit Your Itemized Deductions for Tax Filing 


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What is the Purpose of a Tax Deduction?   

So, let’s begin with the basics; the purpose of a tax deduction is to reduce total taxable income. Deductions help increase your refund because they are reported when you file your tax return. It’s best to think of these returns as simply a summary of taxes paid vs. the total amount owed. And if the amount paid exceeds the tax liability, the IRS issues a refund. 


Tax Bill Calculation: 

The tax bill or “final amount owed” to the IRS is calculated by subtracting tax credits from the division of (gross income – tax deductions) by the average tax rate.  


Tax Refund Example:

Let’s say your total gross income for 2021 was $100,000.00, and each pay period, your employer withheld about 18.02 percent of your paycheck for taxes. This means that you paid the IRS about $18,021 for 2021. 


Now let’s say that you have a total of $20,000 in tax deductions. This reduces your taxed income from $100,000.00 to $80,000, which does two things. First, it lowers your average tax rate from 18.02 to 16.66 percent. Second, it reduces your tax bill from $18,025 to $13,348, making you eligible for at least $4677 + qualifying tax credits in a refund. 


What are Tax Credits?

Tax credits are often confused with tax deductions, but understanding the difference is critical to maximizing your refund. Instead of a deduction from your gross income, a tax credit is a financial sum of money that the IRS will credit toward your final tax bill. 

The child tax credit is a prime example. The IRS used this credit to provide additional pandemic relief to parents with multiple mouths to feed. But since the government subtracts the credit amount from your bill after your taxable income is calculated, you can treat it more like nontaxable income. Tax credits, though, are nonrefundable. Thus, if, after all other deductions, your tax bill is 0, you can’t refund the tax credit for cash.


How Do You Calculate Average and Marginal Tax Rates?

Many commonly mistake the marginal tax rate as the single percentage used to calculate tax liability. Instead, your tax liability is often computed using multiple rates for different income brackets. A marginal tax rate is the percentage of income owed within a single bracket. These brackets are determined through a progressive tax system that sets a range of tax rates from low to high. As revenues increase, so do the marginal tax rates.

Marginal Tax Rate Brackets for 2021:


Marginal Tax Rate

Single or Married Filing Separately

Married Filing Jointly


$9,950 or less

$19,900 or less


$9,951 or more

$19,901 or more


$40,526 or more

$81,051 or more


$86,376 or more

$172,751 or more


$164,926 or more

$329,851 or more


$209,426 or more

$418,841 or more


On the other hand, the average tax rate is the average of marginal rates used to calculate tax liability. So, for example, say total taxable income equals $20,000. All income made within the first $9,950 income is taxed at 10%. And all income between $9,951 and $40,526 is taxed at 12%. Total tax liability then is calculated like this:  

Taxable Income = $20,000

Total income taxed at 10% = $9,951

Total Income Taxed at 12% = $10,049

Tax liability = ($9,951 * 10%) + (10,049 * 12%) = 2200.88


The average tax rate is then calculated by dividing taxable income by tax liability. In this example, the average tax comes to about 11%. 

Average Tax Rate (11%)  = Tax Liability (2200.88) / Taxable Income ($20,000)


What is the Difference Between an Itemized and Standard Deduction?

The difference between standard and itemized deductions is the math used to lower your taxable income. To make that math easy, the IRS offers a standard deduction that reduces your income by a fixed amount. Alternatively, taxpayers can choose the Itemized deductions option, which is simply a list of eligible expenses. 


Standard Deduction Amounts: 

$25,100 for those who are married and file joint returns

$12,550 for single taxpayers and those who are married but file separate returns

$18,800 for taxpayers who qualify as heads of household


Benefits of Choosing Standardized Deduction Vs. Itemized 

If you accept this standard deduction from the IRS, you benefit from lowering your chance of an audit. You also benefit if all the itemized deductions are less than the standard amount but verifying this requires extensive knowledge of the tax code and evolving list of qualifying deductions.

In our experience, there is often a wealth of overlooked deductions that can help taxpayers exceed the standard amount. And the more money you make, the more likely this is the case. 

So ideally, you should only take the standard deduction if you are confident that all eligible and verifiable itemized deductions do not surpass the standard amount. If you are unsure how to verify some of your deductions, it is vital to get professional help filing your taxes, as with our team of savvy tax specialists. 


How to Best Submit Your Itemized Deductions for Tax Filing

45% of Americans use “do-it-yourself” tax software to file their taxes, and as a result, they remain uninformed about an endless list of overlooked itemized deductions. Filing taxes with IRBInc’s tax specialist as part of using our online platform is the best way to ensure that nothing gets overlooked and your itemized list is closer to audit-proof. 

All taxpayers who want to itemize their deductions must file taxes with the 1040 form and enter each deduction on Schedule A. Don’t worry, we complete this step-by-step process for you, entering in the  itemized expenses on corresponding lines in Schedule A, calculating the total, and copying this total to the second page of Form 1040

The unique benefit of our tax service is that it offers the same convenience and easy user experience as other tax software programs, yet provides hands-on advice from a dedicated tax consultant. Start the process today with a simple click of a button at RTBInc.com.  


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