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Most of us understand the gist of income taxes. In order to fund the government, we pay taxes on our income. The more we make, the more we’re taxed.

What’s not as well understood is the role of tax deductions. Tax deductions lower our taxable income and in turn, our tax bill. In other words, some of our income ends up being off limits to taxes.

But how much is deducted? That’s actually up to us taxpayers to decide — sort of. Here’s how it all works and what could change in 2026.

Tax Deductions 101

It’s safe to say most taxpayers want to get the biggest tax deduction they can. But every year you have to decide: Are you better off with the standard deduction amount?

The answer is often yes. The standard deduction will likely be the higher amount for people who don’t have many tax deductible expenses.

But before we explore the choices, let’s take a step back to review the purpose of deductions. The government uses tax deductions as incentives to save for retirement, buy a house, go to college or invest in the economy in other ways. Deductions are also a form of financial relief for people with certain types of expenses, like high medical costs or alimony payments.

And not everyone thinks they’re a good idea: Some economists say deductions should be eliminated since income tax is such a big source of government revenue.

Tax deductions have been a part of the U.S. tax code since the first income tax was passed to pay for the Civil War. Back then, you could only deduct other tax payments — like state and local taxes — but over time the number of deductible expenses has grown. (The IRS has a list posted here.)

Claiming individual tax deductions involves adding them up, or “itemizing” them, on a separate form (Schedule A) of the 1040 tax return. You must make sure to meet any caps or restrictions for eligibility.

The SALT deduction, as the deduction for state and local taxes is known today, is still one of the most frequently claimed, along with the deductions for mortgage interest and charitable contributions, according to the Peter G. Peterson Foundation, a non-profit think tank focused on fiscal policy.

Itemizing Vs. Taking the Standard Deduction

If itemizing deductions sounds like work, it is. That’s why Congress gave people a shortcut in 1944 by introducing the standard deduction. It allowed everyone — even if they weren’t a tax whiz — to shave a set amount off their taxable income.

The standard deduction is the same for almost everyone within the same tax filing status. For example, for the 2024 tax year, the standard deduction for a single filer is $14,600. So regardless of their situation, a single filer gets to subtract $14,600. (For married couples filing jointly, the 2024 standard deduction is $29,200 and for those filing as head of household, it’s $21,900.)

So which option will reduce your taxable income more? While everyone’s circumstances are different, the standard deduction tends to be more valuable for most people, particularly since Congress nearly doubled the amount in 2018, according to the Peterson Foundation. These days, roughly 9 in 10 taxpayers take it, according to the IRS.

(Note: While you can’t itemize and take the standard deduction amount, it’s not entirely one or the other: There are actually some types of deductions, like student loan interest, that can be claimed on top of the standard deduction. These are sometimes called “above-the-line deductions.”)

The Tax Cuts and Jobs Act

Why did the standard deduction get so much bigger in 2018? The Tax Cuts and Jobs Act, passed in 2017, increased standard deduction amounts as part of a broad tax code overhaul that also limited several itemizable deductions. For single filers, for example, the standard deduction jumped from $6,350 to $12,000 in one year and has edged higher every year since to reflect an increase in the cost of living.

It’s important to note that many of the provisions in the TCJA — including the higher standard deductions — are set to expire at the end of this year, so the dynamic could shift again. Before the law was enacted, roughly 30% of taxpayers chose to itemize, according to the Peterson Foundation.

That said, lawmakers are expected to preserve the majority of TCJA provisions beyond this year now that Republicans are back in control in Washington, Bloomberg Government reported last month. The TCJA was originally passed by a Republican majority in Congress.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

The newest personal finance trend sweeping social media: Freeze your credit.

A credit freeze refers to blocking access to your credit reports, which are kept by three national credit bureaus — Equifax, Experian, and TransUnion. Since lenders check those reports as part of their approval process, the freeze prevents would-be identity thieves from taking out a loan or opening an account in your name.

But what’s behind it?

For some, it’s fear that the Department of Government Efficiency’s shakeup of government agencies could make consumer databases more vulnerable just as staffing and budgets are shrinking. For others, it’s concern about the increasingly sophisticated phishing emails and imposter scams that surface every tax season. Either way, it’s a good proactive measure whenever you’re worried that private details could get into the wrong hands.

And there’s no real downside: Freezing your credit is free and simple. Here’s how to do it.

•   Contact each of the bureaus separately, either online or over the phone. Here are the online links:
Equifax, Experian, and TransUnion.

•   Follow the prompts to request a freeze.

•   If and when you need your credit reports to be accessible again (when you’re buying a car or house or applying for a credit card, for example,) you must unfreeze them. It takes about an hour, and you can lift the freeze either temporarily or permanently.

You can also place a fraud alert on any of your three credit reports (the bureau you contact is required to tell the other two bureaus, so you only have to do it once.) A fraud alert doesn’t put a freeze on your credit, but it does safeguard you by telling lenders to check with you before opening an account in your name. It lasts for one year.

Another way to protect yourself: Sign up for credit score monitoring so you’ll get alerts about suspicious activity. (For SoFi members, it’s free.)

So what? Identity theft costs billions of dollars each year, and when criminals get their hands on your personal information, it can wreck your credit score and lead to legal problems. Freezing your credit is an easy way to reduce the risk.

Related Reading

•   Freezing Your Credit Files Online: Step-by-step Guide With Screenshots (U.S. PIRG)

•   Top Scams of 2024 (Federal Trade Commission)

•   Credit Freeze vs. Credit Lock: What Is the Difference? (SoFi)

photo credit: iStock/FTiare

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

OTM20250312SW

The SoFi Invest Active or Robo Taxable Account 1% Match Promotion (“Offer”) is governed by the following Terms & Conditions:

1.   Offer – Subject to these terms and conditions, eligible customers earn a 1% Match (“1% Match”) when transferring at least $5,000 in Net Deposits (as defined below) from SoFi Money or SoFi Checking & Savings into a new SoFi Invest Active Brokerage or Robo taxable account (each, a “New Invest Account”) during the Offer Period (defined below). The 1% Match will be based on the total net deposits in a New Invest Account via incoming ACH contributions during the Offer Period less any outflows or withdrawals (“Net Deposits”) and maintained through the end of December 31, 2025 (the “Holding Period End Date”). The Match will be paid in cash after the Holding Period End Date in January 2026 and deposited into the New Invest Account. Deposits into multiple new taxable accounts (Brokerage or Robo) may not be combined to total $5,000.

  This Offer is made by (i) SoFi Securities LLC with respect to SoFi Active Invest taxable accounts and (ii) SoFi Wealth LLC with respect to Robo taxable accounts.

  SoFi reserves the right to change or terminate this promotion at any time without notice.

  Example 1: If you open a new Robo taxable account and contribute $5,000 during the Offer Period, and do not make any additional contributions or withdrawals for the rest of the year, you will be matched 1% equaling $50.

  Example 2: If you open a new Brokerage taxable account and contribute $10,000 during the Offer Period, and make a withdrawal of $3,000 before the Holding Period End Date, you will be matched 1% of $7,000 equaling $70.

  Example 3: If you open a new Brokerage taxable account and contribute $5,000 during the Offer Period, and make an additional contribution during the Holding Period, you will be matched 1% of $5,000 equalling $50.

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