Standard Deduction: Definition & How Much It Is
No matter what you do for a living or where you’re located, you might be eligible for certain tax breaks issued by the federal government. Yet, there can be a lot to consider. Some tax breaks are only available to married couples or single filers and sometimes your age can play a role.
Plus, you can also choose to itemize some of your tax deductions if that’s the most beneficial option for you. But one of the easiest ways to obtain these tax breaks is by claiming the standard deduction. Want to know how it works? Continue reading to learn everything that you need to know.
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KEY TAKEAWAYS
- The standard deduction is the amount that reduces your earned income that is subject to tax.
- The standard deduction can be used to help reduce your tax bill as long as you don’t itemize your deductions.
- The amount of the standard deduction depends on different factors, including your age and filing status.
- Each year, the standard deduction is adjusted by the Internal Revenue Service (IRS) for inflation.
- Choosing the standard deduction can be an easier option for individuals since there isn’t a need to track each expense.
What Is Standard Deduction?
The standard deduction refers to a dollar amount that reduces your taxable income. If you don’t itemize your tax deductions, you can take the standard deduction.
It’s worth noting that the total amount of your standard deduction depends on a few different criteria. These include your age, filing status, if someone else claimed you on their tax return as a dependent, and if you are blind.
How the Standard Deduction Works
One of the greatest things about the standard deduction is the IRS allows you to claim it regardless of your tax situation. For example, if you don’t have tax credits or other qualifying deductions, you can still claim the standard deduction.
It’s worth mentioning that some people are not eligible for the deduction – married filing separately and the other spouse is itemizing deductions on their tax return, nonresidents, and persons filing a tax return for a short tax year due to a change in accounting period.
Ultimately, the standard deduction helps reduce the total amount of taxes you have to pay on taxable income. But, you have a choice. You can take either the standard deduction or you can itemize deductions on your tax return—you just can’t do both.
The IRS provides a list of allowed expenses for itemized deductions to help reduce taxable income.
If you decide to take the standard deduction, you won’t be able to take advantage of all the other tax deductions and you can’t deduct home mortgage interest. As well, if someone is able to claim you as a dependent on their tax return, the standard deduction amount will be smaller.
When to Claim the Standard Deduction
There are a few things to consider before claiming the standard deduction. It’s worth looking into both the standard deduction as well as your itemized deductions. If your itemized deductions are less than the standard deduction, claiming the standard deduction will save you time and offer a greater tax benefit.
And while claiming the standard deduction is often easier than itemizing, there can be other expenses to consider. For example, if you have a home equity loan or a mortgage, then itemizing expenses can probably save you money since something like mortgage interest isn’t included in the standard deduction.
Find the appropriate figures on IRS Form 1098, the mortgage Interest Statement and compare the deductions. If you itemize, you can also deduct medical expenses, property taxes, charitable donations, state income taxes, or sales taxes.
But if you don’t have many other expenses or you don’t have the time to itemize, claiming the standard deduction can be your best option. With that said, it can always be a good idea to look into both options to see what’s best for your situation.
Standard Deduction vs. Itemizing: What’s the Difference?
Keeping track of all your expenses and ensuring you have accurate records can be time-consuming and tedious. One of the biggest reasons a taxpayer chooses the standard deduction is that it’s easier to claim.
Plus, the standard deduction is often higher compared to itemized expenses. Additionally, the Tax Cuts and Jobs Act capped total state and local tax deductions at $10,000.
The key difference to consider between itemizing and the standard deduction is that you can’t do both. You must choose one or the other. Essentially, it’s what’s going to work best for your individual financial and tax situation. An itemized deduction option might provide a larger deduction compared to the standard deduction if you incurred substantial expenses during the year.
Summary
The standard deduction is a specific amount that you can claim to reduce your total tax bill. The IRS allows almost everyone to claim the standard deduction, even if you don’t have other tax credits or qualifying deductions.
You can choose to itemize your expenses and deductions or claim the standard deduction, but you can’t do both. Ultimately, it’s your choice to decide which route will provide you with the greatest tax benefit.
The total amount of your standard deduction depends on a few criteria. For example, your filing status, your age, if you’re blind, or if someone else included you on their tax return as a dependent.
FAQs About Standard Deduction
Yes, the IRS allows individuals to claim the standard deduction with no questions asked. However, the amounts will differ based on the taxpayer’s filing status and other considerations.
There can be a wide range of additional deductions you can claim with the standard deduction. These can include educator expenses, student loan interest, and IRA contributions.
If you file as an individual or a married couple filing separately, the standard deduction amount for 2022 is $12,950. For heads of household, this amount increases to $19,400. For a married couple filing together, the maximum standard deduction is $25,900.
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