What is the Standard Deduction?

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Definition:

The standard deduction is a dollar amount that taxpayers can subtract from their taxable income when filing their federal income taxes — it reduces the amount of income on which you’re taxed.

🤔 Understanding standard deduction

In the US tax code, the Internal Revenue Service (IRS) allows taxpayers to reduce their income subject to federal taxes by a predetermined amount—this is called the standard deduction. Most taxpayers use the standard deduction. If you don’t take the standard deduction, however, the tax code allows you to make a list of qualified expenses (e.g., mortgage interest, state taxes, charitable donations) which you can subtract from your income. These would be itemized deductions. When you file your taxes, you choose either the standard deduction or itemized deductions. You don’t use both. Except in rare circumstances, it’s helpful to use whichever approach gives you the greater deduction.

Example

Suppose that during 2022, 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 state 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. Since the standard deduction for 2022 (\$12,950) can reduce Tom’s income by a larger amount, he would probably just take the standard deduction.

The Standard Deduction

| Tax Status / Tax Year | 2021 | 2022* | | ---------- | ---------- | ---------- | ---------- | Single OR Married filing separately | \$12,550 | \$12,950 | | Head of Household | \$18,800 | \$19,400 | | Married couples filing jointly | \$25,100 | \$25,900 | *Note: Taxes for 2022 are due in spring 2023. If you’re filing 2022 taxes, please reference the column for 2022.

Takeaway

The standard deduction is like the default setting on your printer...

For most people, the default settings are going to work — 8.5 x 11-inch paper and black ink. But sometimes, you might have a special situation. For instance, you might be printing 5x7 photos on glossy paper. As a taxpayer, you can determine whether the standard deduction or itemized deductions will give you the lowest tax liability.

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

Itemizing your deductions refers to listing each item for which you are entitled to a tax deduction. Itemized deductions are recorded on a form called Schedule A, which you attach to your federal form 1040 (income tax filing).

While you should consult with a tax professional to ensure your filing is in order, here are a few examples of common 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 paid to state and local governments (property, sales, and income taxes)

Some deductions may be taken outside of your Schedule A, but that's it. Your Schedule A can help you decide whether to itemize your deductions or take the standard deduction.

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.

Ultimately, making the right choice can help you reduce how much you owe in taxes.

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 reduces your income in much the same way as itemizing 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, it increases 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 2022, that amount is \$12,950 per taxpayer (this is the amount for tax year 2022, which you would use when filing your taxes that are due in spring 2023). 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 - this is called filing jointly. In that case, each person's standard deduction is put into one filing, so the amount is doubled (\$25,900 in 2022). While this might sound like a tax advantage for being married, each person receives the same standard deduction as they would’ve 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 Year Single Married Head of Household 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 2021 \$12,500 \$25,100 \$18,800 2022 \$12,950 \$25,900 \$19,400 2023 \$13,850 \$27,700 \$20,800

You may notice that the standard deduction nearly doubled in 2018. That's 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 reform, those personal exemptions were effectively rolled into the standard deduction.

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 \$1,750 to the basic standard deduction in 2022. However, married taxpayers filing jointly are limited to \$1,400 apiece. (This will increase to \$1,500 in 2023.) If either taxpayer is 65 or older, they qualify for the additional standard deduction of \$1,400. If both taxpayers on the joint return are 65 or older, they can add a total of \$2,800 to the standard deduction (\$3,000 in 2023).
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 \$1,750 (\$1,850 in 2023). Married couples filing jointly can add \$1,400 (\$1,500 in 2023) 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 \$1,150 in 2022 (\$1,250 in 2023). If their income is less than this amount, they can reduce their taxable income to zero.

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