Income Tax Issues: How do the standard and itemized deductions compare?

Tax filers may either claim the standard deduction, whose value varies with filing status, or itemize individual deductible expenses. In either case, taxable income is reduced by the amount of the allowed deduction.

• In 2008 single filers and married persons filing separately may claim a standard deduction of $5,450. The standard deduction for married couples filing jointly is double that amount: $10,900. Heads of household may deduct $8,000.
  
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• Individuals who are blind or age 65 or older may deduct additional amounts. Single filers and heads of household may claim an additional $1,350 for each condition (blind or elderly); the additional amount for married filers is $1,050 per condition. Thus, for example, an elderly couple who are both blind may claim a total deduction of $15,100 ($10,900 standard deduction plus four additional $1,050 deductions).
• In 2005 nearly two-thirds of tax units claimed the standard deduction (figure 1). About one in eight of those units claimed an additional deduction because at least one member was elderly or blind.
• Alternatively, tax filers may itemize the actual amounts spent on allowed deductible expenses, the most common of which are state and local taxes, mortgage interest, charitable contributions, medical and dental expenses, and casualty and theft losses (figure 2).
• High-income individuals must reduce their itemized deductions. The basic reduction equals 3 percent of the amount by which adjusted gross income exceeds $159,950 (in 2008; $79,975 for married couples filing separately), up to 80 percent of deductions claimed. The 2001 tax act cut that reduction by one-third for 2006 and 2007, by two-thirds in 2008 and 2009, and completely in 2010. After the 2001 act sunsets in 2011, the reduction resumes its full value.
• Itemized deductions averaged about $24,400 in 2005 for tax units claiming them (figure 2). Married couples filing jointly tended to have higher deductions, averaging nearly $29,000; both single filers and heads of household claimed an average of about $18,000 each.
  
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• Mortgage interest and state and local taxes each accounted for somewhat over a third of average itemized deductions in 2005, nearly $8,500 each. Charitable contributions made up about half of the remaining deductions, an average of about $3,800.