Standard deduction or itemized? The 2025 math is different.
STANDARD VS. ITEMIZED: THE 2025 MATH IS DIFFERENT
The standard deduction exists so the IRS can process 150 million returns without auditing every receipt.
It's a convenience. It's not always the better deal.
94% of taxpayers take it. Most never run the comparison.
For W-2 employees with a modest mortgage and no state income tax, the standard deduction is still the right call. For business owners in high-tax states — with a mortgage, meaningful state income taxes, charitable giving, and in many cases investment interest flowing to their personal return — 2025 is the year to check.
The One Big Beautiful Bill changed the math. Here's what you need to know.
What the Standard Deduction Looks Like for 2025
The standard deduction increased for 2025:
- Single: $15,750
- Married filing jointly: $31,500
- Head of household: $23,625
You itemize when your total deductible expenses exceed that number. The OBBB moved the bar — and more business owners will clear it in 2025.
The SALT Change That Matters
State and local tax deductions — property taxes plus state income taxes, combined — were capped at $10,000 from 2018 through 2024.
If you were paying $25,000 in state income taxes and $12,000 in property taxes, you could only deduct $10,000 of it on your federal return. The rest was gone.
That cap hit hardest in California, New York, New Jersey, and Illinois. Business owners in those states were paying full freight on state taxes with no federal offset above $10,000.
For 2025, the SALT cap increases to $40,000. Phase-out begins at $500,000 MAGI (married filing jointly) / $250,000 (single), where the deduction may revert toward the old $10,000 cap.
The practical impact: business owners in high-tax states who were hitting the $10,000 ceiling now have room to deduct more — if they itemize.
The Standard vs. Itemized Decision
The break-even for a married couple filing jointly is $31,500.
A note on mortgage interest: for loans originated after December 15, 2017, the deduction is limited to interest on the first $750,000 of debt. Factor that into your totals if you have a larger mortgage.
Here's what the math looks like across three scenarios:
Scenario A — Close, but under
Mortgage interest: $12,000 SALT (property + state income): $14,000 Charitable giving: $4,000 Total: $30,000
Under the threshold. Take the standard deduction.
Scenario B — Over the line
Mortgage interest: $18,000 SALT: $20,000 Charitable giving: $5,000 Total: $43,000
Itemize. That's $11,500 more than the standard deduction. At 24%, that's $2,760 back.
Scenario C — High earner, high-tax state (Assume $450,000 taxable income)
Mortgage interest: $24,000 SALT: $38,000 (just under the new $40,000 cap) Charitable giving: $8,000 Total: $70,000
Itemize. That's $38,500 over the standard deduction. At 32%, that's $12,320 back.
Under the old $10,000 SALT cap, that same person's itemized total would have been $42,000 — saving $3,360 at 32%. The new cap delivers $8,960 more in savings with no change in behavior.
If you're in California, New York, New Jersey, or Illinois with a meaningful mortgage and income above $200K, run the comparison before your return gets filed. The gap between "I assumed standard" and "I checked" can be five figures.
The Bunching Strategy
If you're close to the itemizing threshold but not over it every year, bunching concentrates deductions into alternating years.
Instead of giving $5,000 to charity every year, give $10,000 every other year. In the bunching year, your itemized total clears the bar. In the off year, take the standard deduction.
Same logic applies to medical expenses, property taxes, and state estimated tax payments. On estimated taxes: pay your Q4 state payment by December 31 — not January 15 — for it to count in the current tax year.
Total deductions over two years are the same. Tax savings aren't.
S-Corp Owners in High-Tax States: The PTET Move
If you're running an S-Corp in a conforming state, the Pass-Through Entity Tax election is worth understanding.
PTET lets your S-Corp pay state income taxes at the entity level. That converts a capped personal deduction into a full business deduction — no SALT ceiling applies.
The new $40,000 cap changes the math here. If your income is below $500,000 MFJ and your combined state income taxes and property taxes come in under $40,000, the higher cap may give you full deductibility on your personal return without the entity-level election. Run the itemized comparison first.
Where PTET still matters
Above the phase-out threshold. Above $500,000 MFJ ($250,000 single), the SALT deduction phases back toward the old $10,000 cap. Personal SALT is constrained at that income level regardless of the new ceiling. PTET converts that limited personal deduction into a full business deduction with no cap.
State tax bills above $40,000. The new cap is still a cap. If your combined state income taxes and property taxes exceed $40,000, the excess gets no federal offset on your personal return. PTET picks up everything above the ceiling.
The short version: below $500K with a manageable state tax bill, check itemized first. Above $500K or carrying a large state tax liability, PTET is still one of the most valuable elections available to S-Corp owners.
Works in 30+ conforming states including California, New York, New Jersey, Illinois, and Georgia. Timing requirements vary — some states require the election before year-end, others allow it at filing. Ask your CPA about deadlines before your return is filed.
What to Do Before You File
Run the numbers both ways.
Add up mortgage interest (subject to the $750K loan cap), your full SALT figure (now up to $40,000 for 2025), and charitable giving. If that total clears $31,500 MFJ or $15,750 single, itemize.
If you've been defaulting to the standard deduction without checking, this is the year to compare. The OBBB moved the SALT ceiling from $10,000 to $40,000. The math is different.
If you're in a high-tax state with an S-Corp and significant state income tax liability, ask about the PTET election before your return gets filed.
We run this comparison for every Better Bookkeeping client before the return goes out. If you want us to model your specific situation — including whether the PTET election makes sense — book a consultation with the team.
P.S. Next week: vehicle deductions — and the Year 1 method election that locks in what's available to you forever. Most business owners default to the wrong choice. Here's how to choose right.