What is a Standard Deduction?

Robinhood Learn
Democratize finance for all. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.
Definition:

The standard deduction is an amount of personal income that taxpayers can deduct when filing their federal income taxes without filing additional forms.

🤔 Understanding standard deduction

In the U.S. tax code, the Internal Revenue Service (IRS) allows a predetermined amount, called a standard deduction, to reduce a person’s income that is subject to federal taxes. The tax code also allows certain expenditures (mortgage interest, state taxes, medical costs, charitable donations, etc.) to reduce the amount of income that is subject to taxes. When filing your taxes, you can either itemize all of your qualified deductions or take the standard deduction. Except in very rare circumstances, it is advantageous to take whichever approach gives you the greater deduction. The majority of taxpayers take the standard deduction.

Example

Suppose that during 2019, Tom (a single man without children) earned $63,000 in wages and had no other source of income. He gave $3,000 to charity and paid $4,000 in property taxes to his local government. He has no other qualifying deductions. When Tom files his taxes for the year, he must decide between taking the standard deduction or filing a schedule A to list the $7,000 worth of qualified deductions. In 2019, the standard deduction for a single taxpayer was $12,200. Therefore, Tom should probably just take the standard deduction.

Takeaway

The standard deduction is like playing a video game in default mode instead of customizing your settings…

You can stick with the normal rules and settings (the standard deduction) for less effort; but maybe you could have improved your score by changing the number of points needed to win, the length of the game, and features of your game character (like taking a bigger deduction by itemizing). The difference is that you can tell for sure whether you’re better off itemizing deductions on your taxes, while you probably can’t fully control what score you’ll get in a video game.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.
Sign up for Robinhood
Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory.

Tell me more…

What is the difference between itemizing and taking the standard deduction?

Itemizing refers to listing each item for which you are entitled to a tax deduction. This process is done on a form called Schedule A, which is attached to your federal form 1040 (income tax filing).

There are many things that are tax-deductible. While you should consult with a tax professional to ensure your filing is in order, here are a few examples of often-used tax deductions:

  • Donations to charity
  • Interest payments on your mortgage and home equity loans
  • A portion of healthcare costs and contributions to health plans
  • Taxes to state and local governments (property, sales, and income taxes)

There are several others, as well as deductions that occur outside of your Schedule A. But it is your Schedule A that is relevant to the decision of whether or not to take the standard deduction.

In 2019, the standard deduction was $12,200 for single filers and married filers filing separately, $24,400 for married filers filing jointly, and $18,350 for heads of household. In 2020, it is $12,400 for singles and married filers filing separately and $24,800 for married joint filers.

When filing your taxes, you must decide to either take that amount as a deduction or to itemize your deductible expenses. The vast majority of people end up taking the standard deduction. Unless you give a lot of money to charity, live in an expensive house, or pay a lot of taxes, it is generally difficult to have more deductible expenses than the standard deduction.

How do I claim my other deductions?

If you elect to take the standard deduction on your federal income form 1040, you do not need to claim most of your deductions. The standard deduction allows you to get the benefit of reducing your income in the same way as claiming your deductions, but without the extra paperwork.

However, there are a few tax deductions that happen outside of the Schedule A and Standard Deduction framework. You can claim those specific deductions in addition to the standard deduction by filing a Schedule 1 along with your taxes. Here are a few examples of additional deductible expenses (technically called “adjustments to income”):

  • Educator expenses
  • Certain small business expenses and taxes
  • Health Savings Account contributions
  • Certain retirement plan contributions
  • Student loan interest

What are the standard deduction amounts?

The amount of the standard deduction depends on your filing status and typically increases by inflation each year. If you are a single taxpayer, and you have no dependents, the amount of the standard deduction is listed as “single” in the table. In 2019, that amount is $12,200 per taxpayer (this is the amount for tax year 2019, which you would use when filing your taxes that are due April 15, 2020). That same amount applies to people that are married, but elect to file their taxes separately.

Married people are allowed to file one tax return for both of them, called filing jointly. In that case, both standard deductions are put into one filing, so the amount is doubled ($24,400 in 2019). While this sounds like a tax advantage for being married, it is the same total amount of deductions they would get if they filed separately.

The other filing status is called “Head of Household.” This is a special status for single parents and people providing for others. To qualify, you must be unmarried, have a qualifying person living with you, and provide for more than half of the expenses of the household. For divorced parents, only one parent can claim the child to gain Head of Household status. The rules to qualify can be tricky, so consult a tax professional. If you qualify as a Head of Household, the standard deduction amount is about 50% higher than the single rate.

Tax YearSingleMarriedHead of Household
2010$5,700$11,400$8,400
2011$5,800$11,600$8,500
2012$5,950$11,900$8,700
2013$6,100$12,200$8,950
2014$6,200$12,400$9,100
2015$6,300$12,600$9,250
2016$6,300$12,600$9,300
2017$6,350$12,700$9,350
2018$12,000$24,000$18,000
2019$12,200$24,400$18,350
2020$12,400$24,800$18,650

You’ll notice that the standard deduction nearly doubled in 2018. That is because of the Tax Cuts and Jobs Act, which became law in 2017. This law significantly changed the standard deduction amounts and the way personal tax liability is calculated.

Before that legislation took effect, the standard deduction was smaller, and each person within a household had a “personal exemption” amount. With the 2017 tax change, those personal exemptions were effectively rolled into the standard deduction.

What are some additional deductions?

There are three ways that the standard deduction can be increased:

  1. Disaster losses can be added to the standard deduction in certain circumstances. To be eligible, the losses must occur in a federally declared disaster area. Recently, Hurricanes Harvey, Irma, and Maria were qualifying areas. As were the California wildfires. In other cases, damaged or stolen property might be deductible as a “casualty loss” on other parts of your tax return. It is always a good idea to consult a tax professional to understand your options.
  2. People 65 years of age and older can add $1,650 to the basic standard deduction. However, married taxpayers filing jointly are limited to $1,300 apiece. If either taxpayer is 65 or older, they qualify for the additional standard deduction of $1,300. If both taxpayers on the joint return are 65 or older, they can add a total of $2,600 to the standard deduction.
  3. Blindness also qualifies an individual for an additional standard deduction. To qualify, the person must attach a certified letter from a doctor that states that your best eye is no better than non-correctable 20/200 vision, or that you have a limited field of vision (20 degrees or less). If a taxpayer meets these requirements, they may be eligible for an additional standard deduction of $1,650. Married couples filing jointly can add $1,300 per person eligible for the blindness addition.

If a person is both blind and at least 65 years old, they can add the additional standard deduction amounts for each qualification.

What are the limitations to standard deductions?

The Standard Deduction greatly simplifies the tax reporting process for most people. It saves you the effort of collecting, saving, and filing documents throughout the tax year. But the standard deduction amount limits the total deductions you can take. So, if you are a person fortunate enough to have a significant amount of deductible expenses, it might be better for you not to take the standard deduction — that is, to itemize deductions.

Also, note that certain individuals cannot take the standard deduction, or must use an alternative amount. For example, nonresident aliens are required to itemize their deductions rather than take the standard amount. Likewise, if a married couple elects to file separately, they must both make the same election. So, if one person is itemizing, the other person is required to do the same.

A person who has income, but is also claimed as a dependent on someone else’s taxes, cannot take the standard deduction. This typically is the case when a teenager has a part-time job while still living at home. In this case, the child must file a tax return for their income, but can only take a standard deduction up to $1,450. If their income is less than this amount, they can reduce their taxable income to zero.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory.

1334196

Related Articles

You May Also Like

The 3-minute newsletter with fresh takes on the financial news you need to start your day.
The 3-minute newsletter with fresh takes on the financial news you need to start your day.


© 2020 Robinhood Markets, Inc. Robinhood® is a trademark of Robinhood Markets, Inc.

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC provides brokerage services. Robinhood Securities, LLC, provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. Robinhood U.K. Ltd (RHUK) provides brokerage services in the United Kingdom. All are subsidiaries of Robinhood Markets, Inc. ('Robinhood').

1200251