Tax Terms You Need to Know - Standard vs Itemized Deductions

Video Transcript

Hey this is Chris with Money Burst and we are deep into tax season yet again. And so I thought I'd continue our tax term series with video number two here. And today, I want to talk about two types of deductions that you're going to see when you file your taxes. That will be the standard deduction, and then something called itemizing your deductions.

Now, the standard deduction is something that we all are eligible for. It's an amount set by the IRS, and essentially, it's a lumpsum amount that you can deduct from your income before you calculate how much you owe in taxes. There's no loophole or trick to this, it's just something that we're all eligible for. Now, the standard deduction, it varies by year, and the status that you choose when you file. So, for example, in 2025 if you're single you would be able to take a standard deduction of $15,000. If you're married, you' be able to double that and take $30,000. So, to give you, like, a real practical example, if you're a married couple making $80,000 a year you can deduct $30,000 from that income before you go and calculate your tax bill. So essentially, you're paying taxes on $50,000 instead of your full $80,000, which is a really nice tax break.

So, the alternative to taking the standard deduction would be to do something called itemizing your deductions. And this is where you take an approved specific list of expenses and add them together and use that as a way of reducing your income versus taking the standard deduction. And you would only choose this route if the number of items that you're adding up, or that total amount of those items you're adding up are greater than the standard deduction. Some of the things that you can include in this itemized deduction list are things like your mortgage interest expense, certain medical expenses, charitable donations and you would add all these things up, put them on your tax return, and that's what you would do to make that reduction in your income. But of course, you'd only do this if it is a larger number than that standard deduction.