What Is the Standard Deduction in 2023? Your Updated Tax Brackets Guide

Broadly speaking and in simple terms, most Americans have a choice of methods to reduce their taxable income when filling out their federal income tax return: either taking itemized deductions (specific types of eligible expenses that must be individually listed using Schedule A) or using the standard deduction (a flat amount determined by factors like income, age, filing status, and more).

In certain circumstances, itemized deductions can maximize savings. However, taking this approach requires you to keep track of your deductible expenses throughout the year, maintain supporting documentation like receipts and bank statements, and determine whether the total amount of allowable itemized deductions exceed the amount you would get under the standard deduction. If that sounds like a lot of work, it is — unless itemizing yields a lower tax burden than the standard deduction, it’s likely not worth the time and effort.

Some examples of circumstances in which you may benefit from itemizing include:

• You can’t use the standard deduction, or the amount you can claim is limited;
• You had significant unreimbursed medical or dental expenses;
• You paid mortgage interest or real property taxes on your home;
• You had large “Other Itemized Deductions” or large unreimbursed casualty or theft losses from a federally-declared disaster; or,
• You made considerable contributions to qualified charities.

For an estimated 90% of Americans, the standard deduction is the quicker and more straightforward approach.

Each year, the IRS adjusts things like tax brackets, the value of credits and deductions, contribution limits to retirement plans, and more. They do this for two primary reasons:

• First, to prevent “bracket creep,” which occurs when inflation pushes taxpayers into higher income brackets, thereby incurring higher tax rates without a corresponding boost in real income.
• Second, the adjustment limits the amount of money the federal government can bring in due to pure inflation. Put another way, it prevents Congress from taking in more tax revenue without raising taxes.

In the wake of last year’s record inflation, 2023’s adjustments are substantial.