Question

Consider the differences between the standard deduction vs. itemized deduction given the filing status. In addition, compare and contrast deductions for AGI and deductions from AGI (itemized deductions).

	Alice	Brian	Craig	Computation
Gross Income	$80,000	$80,000	$80,000	-
Adjusted Gross Income (AGI) Deductions	($8,000)	($4,000)	0	-
AGI	$72,000	$76,000	$80,000	(Gross Income) + (AGI Deductions)
Standard Deduction	($12,000)	($12,000)	($12,000)	Single Taxpayer
Itemized Deduction	0	($4,000)	($8,000)
Greater Deduction (of Standard or Itemized Deductions)	($12,000)	($12,000)	($12,000)
Personal & Dependency Exemptions	0	0	0	The Tax Cuts & Job Act (TCJA) suspended personal exemptions from 2018-2025
Taxable Income	$60,000	$64,000	$68,000	(AGI) + (Greater Deduction) + (Personal & Dependency Exemptions)

Answer 1

Both standard deductions and itemized deductions reduce your gross total income, however there is a difference between the two.

Standard deduction:

Standard deduction is a flat deduction from the gross total income without any questions being asked. There is no need to submit any supporting documents are justifications for the same. The amount is fixed and straight away it can be deducted from the gross total income. It is not complicated, and the return can be filed quickly, and the amount might increase every year.

Itemized deduction:

Itemized deductions are certain category of expenses which are allowed as a deduction from gross total income. There are number of categories for the same and it requires some documentation and the rules need to be understood. However, u end up claiming more amount than standard deduction.

A person can avail either standard deduction or itemized deduction whichever is more beneficial. In case of married people if the returns are being filed separately both have to either itemize or take standard deduction.

Compare and contrast the deductions for AGI and deductions from AGI:

The deductions for AGI and deductions from AGI can also be termed as above the line deduction and below the line deductions respectively. Both the deductions result in reducing the taxable income.

Above the line deductions help in determining your AGI which is the key for reducing tax liability. These deductions include stock losses, rental deductions, student loan interest etc. Above the line deductions are more worth because they calculate AGI based on which tax rate is determined. So, the maximum deductions allowed should be taken here to reduce the tax rate.

Below the line deductions are those deductions which are reduced from AGI. They include medical expenses, charitable donations, interest expenses etc. Below the line deductions are not allowed unless in excess of required AGI percentage. Below the line deductions are limited in number compared to above the line deductions.