Tax Deduction Basics and Tips

January 31, 2024 Hayden Adams Beginner
Learn the two main tax deduction types, how tax deductions work, and how they may or may not apply to you and your taxes.

Tax deductions have long been near and dear to taxpayers because deductions provide a way to help reduce taxes. Tax deductions come in many forms, but all deductions have one common trait: They can reduce taxable income and lower your overall tax bill. 

The federal tax code has two main tax deductions available: the standard deduction and the itemized deduction. Unfortunately, you can only choose one each tax year, not both. So how do these deductions work, and which one should you choose? Here are some basic tips to help you better understand the two main types of tax deductions and some other potential deductions that may be available to you.

Standard deduction

The standard deduction is the primary federal tax deduction available to almost all taxpayers who file a tax return. The deduction varies depending on filing status (for example, single versus married), age, and other factors, such as being blind. The standard deduction is adjusted to account for inflation each year, but it can also change if Congress rewrites tax laws or if a law sunsets. The tables below show the standard deduction amounts for tax years 2023 and 2024.

2023 standard deduction Deduction limit
Single & married filing separately $13,850
Married filing joint (and surviving spouse) $27,700
Head of household $20,800
2023 additional standard deduction Deduction limit
Blind or over 65 Add $1,500 per person
Blind or over 65, and unmarried Add $1,850
2024 standard deduction Deduction limit
Single & married filing separately $14,600
Married filing joint (and surviving spouse) $29,200
Head of household $21,900
2024 additional standard deduction Deduction limit
Blind or over 65 Add $1,550 per person 
Blind or over 65, and unmarried Add $1,950

Since the passage of the Tax Cuts and Jobs Act (TCJA), most taxpayers claim the standard deduction when filing their federal tax returns. That’s because the TCJA effectively doubled the deduction, which means the standard is larger than the itemized deduction for most people. But be aware, the increased standard deduction is set to expire in 2025 and revert to the prior lower deduction amount, unless Congress extends the tax law.

Itemized deduction

Itemizing tax deductions requires a little more work, but it can potentially lead to additional tax savings, depending on your situation. While there are many itemized deductions available, here are a few common ones: 

  • Medical and dental expense deduction: If you have unreimbursed medical or dental expenses, you may be able to get a tax deduction. However, those expenses need to exceed 7.5% of your adjusted gross income (AGI) to be deductible. For example, if your AGI was $100,000, any medical expenses more than $7,500 would be allowed as an itemized deduction. To learn more about this deduction, see the IRS website.
  • Deduction for taxes paid: You may be able to deduct state and local income taxes or sales taxes you paid during the year (but there is no deduction for your federal taxes paid). This can also include state and local property taxes, such as taxes on your car and real estate. However, the TCJA limits the overall deduction for taxes to $10,000 ($5,000 if married and filing separately).
  • Deduction for interest payments: Homeowners can deduct mortgage interest and points on the first $750,000 of their mortgage ($375,000 if married and filing separately). But if you bought a house before December 16, 2017, you may still be eligible for the higher limitation of $1 million of the mortgage ($500,000 if married and filing separately). It’s also possible to deduct some interest expenses related to your investments, see “Investment Expenses: What’s Tax Deductible?” to learn more.
  • Charitable donation deduction: Donations of money or property to a qualified tax-exempt organization may be deductible. There are numerous limits on this deduction based on your AGI. Cash donations can only be deducted up to 60% of your AGI, donations of property (like a car or stock) are limited to 30% or your AGI, and if you donate both cash and property, the AGI limit is generally 50%. Any donations that aren't deductible in the current year can be carried forward up to five years. There are many other rules about deducting charitable donations. To learn more, read “Charitable Donations: The Basics of Giving”.

Keep in mind, if you elect to report itemized deductions on your federal tax return, you’ll have to track and keep evidence to support your deductible expenses.

Which deduction to choose?

For most people, total itemized deductions will likely be less than the standard deduction. If so—don’t fret—it’s generally a good thing because you end up with a larger deduction and don’t need to worry about keeping any supporting documents. In the end, the decision between taking the standard or itemized deduction is a simple one—you should generally take the larger deduction because it'll reduce your taxes the most. 

Other deductions

There are many other tax deductions available, and most can be claimed in addition to the standard or itemized deduction. Here are a few other common ones: 

  • Contributions to tax-deferred retirement accounts like a traditional IRA
  • Health savings account contributions (you must be part of a high-deductible medical plan to take this deduction)
  • Certain education expenses like interest on a student loan
  • Losses on the sale of a capital asset like a stock loss

There are numerous other tax deductions within the tax code, but each deduction can have its own set of rules and limitations. To learn more about the various deductions available, check out the IRSs list of Credits and Deductions for Individuals.

Bottom line

The tax code is large and complex, and Congress is constantly changing it, which makes it easy to overlook some potential tax savings opportunities. That’s why we recommend working with a tax professional and wealth advisor to help ensure you don’t miss out on any tax deductions. Tax planning is a year-round endeavor, and with a good tax plan in place, you can potentially save more on taxes, which means you could have more money to invest and grow for your future. 

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Supporting documentation for any claims or statistical information is available upon request.

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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