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Standard and itemized tax deductions

Video transcript

- [Instructor] Person A here made $100,000 in the year that we care about, and he's getting ready to pay his taxes, and he's got some deductions. He made a $2,000 donation to charity and a $5,000 donation to state taxes, or not a donation, (chuckles) he paid $5,000 in state taxes. So his total deductions right over here, and we would call these his itemized deductions, 'cause he has literally put all of the items that he's deducting, so his itemized, itemized deductions are going to be $7,000. Now, before he just decides to subtract that $7,000 from his income to get his new taxable income, he should compare that against the standard deduction. No matter what you do here, the IRS will give you just a freebie deduction. And if you're a single person, and this is, obviously, depending on what year you're filing in, but at the time of this video, the standard deduction, the standard deduction is $6,100 for a single person. So in this person's situation, his itemized deductions were larger than his standard deductions, so this is what he is going to take. He can't take both of these, so he can't deduct 13,100. He would wanna pick the larger of these two things. So his taxable income will be $100,000 minus $7,000. So his taxable income is going to be 93, $93,000. This is what he's going to pay taxes on. Now let's think about Couple B right over here. They, as a couple, made $100,000. They're married, they're filing jointly. And they've made a $4,000 donation to charity. They've paid $5,000 in state taxes. And they've paid $3,000 in mortgage interest. And all of these are tax deductions. So what are their total itemized deductions? So, itemized deductions. Let's see, four plus five is nine, plus three is $12,000 in itemized deductions. Now, you might say, oh, this is great. They can deduct 12,000 from their 100,000. But once again, we wanna compare it against the standard deduction. It's not gonna be the same standard deduction as what we saw for a single person. Now, they're married filing jointly. It's actually twice as large. Their standard deduction, their standard deduction is going to be 12,200. So even though they made all of these donations or they paid these taxes and they paid this mortgage interest, it still didn't become larger than their standard deductions, so it's still in their best interest to just go ahead with their standard deduction. So it really didn't matter, from a tax point of view, whether or not they made these donations. 'Cause they still didn't get past this threshold right over here. Once again, you have to pick the larger of these two. You don't get both of these. So their taxable income, Couple B's taxable income, in this scenario, is going to be 100,000 minus 12,200, which is what? 100,000 minus 12,000 would be 88,000. Minus another 200 would be $87,800 of taxable income.
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