More People Are Taking the Standard Deduction in 2023: Here’s Why
When it comes time to file your returns, reducing your taxable income is the name of the game. You should never try to conceal income or misrepresent your earnings to the IRS, but you should use every legal means at your disposal to keep as much of your cash out of the agency’s reach as possible.
You do that by claiming deductions.
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Deductions aren’t the same as tax credits, which lower your bill on a dollar-for-dollar basis. Instead, deductions reduce the portion of your income that the IRS can tax — and less taxable income means a smaller tax bill.
Taxpayers can either itemize their deductions — add up all the year’s qualifying expenses one by one — or take the standard deduction, a fixed dollar figure that reduces everyone’s taxable income by the same amount.
But they can’t do both — and it’s important to pick the method that’s right for you. More people plan to take the standard deduction this year than they did last year — and that makes perfect sense.
People Are Flocking to the Standard Deduction — or Running From Itemizing
According to a new GOBankingRates survey of more than 1,000 adults, nearly 22% plan to take the standard deduction when they do their taxes this year. In last year’s survey, 17% planned to take the standard deduction. Part of the reason people take it, and appear to be doing so this more, is that it makes life easier.
Deductions can be one of the hardest tax topics for people to wrap their heads around — more than 30% of the people polled say that deductions cause more confusion at tax time than anything else — and the standard deduction is the simplest option by far.
Even so, only about 10% of the study’s respondents could correctly cite the amount of this year’s standard deduction.
With that much confusion surrounding the issue, why are more people planning to take the flat-rate standard deduction instead of trying to scour for every deduction possible?
Here’s what you need to know.
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Who Would Want To Itemize If They Could Take the Standard Deduction?
President Donald Trump’s Tax Cuts and Jobs Act (TCJA) lowered personal tax rates nearly across the board, but the law’s most consequential provision might be the one that increased the standard deduction.
In tax year 2017, it made sense for individuals to take the standard deduction only if they had less than $6,350 worth of write-offs — times two for couples filing jointly. But anything more meant they were in for the grueling grunt work of saving receipts, tabulating expenses and filling out Schedule A of Form 1040 to itemize their many scattered deductible expenses, including:
- Medical and dental costs
- Investment interest
- Business expenses
- Mortgage interest and points
- Tax preparation fees
- Unreimbursed employee expenses
- Qualified state and local taxes
- Theft, disaster and casualty losses
2018 Launched a National Shift Away From Itemizing
The TCJA nearly doubled the standard deduction to $12,000 and $24,000, depending on your filing status, and the impact was immediate.
According to the Tax Foundation, the increase meant that 29 million Americans were suddenly better off taking the standard deduction than suffering through the ritual chore of itemizing — something more and more taxpayers continue to do today.
“One of the primary reasons more people are taking the standard deduction this year is due to the Tax Cuts and Jobs Act, which nearly doubled the standard deduction for both single and married taxpayers,” said Preet Kaur, finance and tax manager for Matajer Dubai.
The number of filers who itemized dropped from 46.5 million in 2017 to 18 million in 2018 as 90% of taxpayers opted for the newer, bigger, better standard deduction.
The Standard Deduction Doesn’t Make the IRS’ Ears Perk Up Like Itemizing
When the TCJA opened the standard deduction to millions of new taxpayers, the time it took to complete the average return dropped by up 7% — but simplicity isn’t the only reason the standard deduction beats itemizing.
For more than 10% of the study’s respondents, the fear of getting audited is the biggest worry of the entire tax-filing process — and the two subjects are closely linked.
According to Kiplinger, unusual deductions are one of the primary red flags that trigger audits, and if you get audited after itemizing, you’re only as good as your receipts.
The standard deduction, on the other hand, does not make the IRS’ software single you out for further examination.
Then, of course, there’s the impact of recent events
“Additionally, the pandemic may have caused some taxpayers to have reduced itemizable expenses, such as charitable donations or business expenses, which could also make the standard deduction more appealing,” Kaur said.
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Methodology: GOBankingRates surveyed 1,002 Americans aged 18 and older from across the country on between January 30 and February 1, 2023, asking fourteen different questions: (1) How do you plan on filing your taxes for this year?; (2) When do you expect to file your taxes this year?; (3) How much do you expect to receive in a tax refund?; (4) What do you plan to do with your refund?; (5) Do you feel confident you are receiving all the deductions you feel qualified for?; (6) Do you believe your tax dollars are being spent effectively?; (7) Do you believe you are paying too much, too little, or a fair share in taxes?; (8) Have you ever been audited before?; (9) Who will/would use your tax dollars the best?; (10) How much is the standard deduction for a single filer (and married filers) in 2023?; (11) What concerns you the most about Tax Day?; (12) Do you expect your tax refund this year to be more or less than last year?; (13) What do you understand the least about your taxes?; and (14) What would you rather be doing than your taxes? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
