What is the 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 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 2020, 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 ($12,400) can reduce Tom’s income by a larger amount, he would probably just take the standard deduction.

The Standard Deduction

Tax Status / Tax Year20212020*2019
Single OR Married filing separately$12,550$12,400$12,200
Head of Household$18,800$18,650$18,350
Married couples filing jointly$25,100$24,800$24,400

*Note: Taxes for 2020 are due in spring 2021. If you’re filing 2020 taxes, please reference the column for 2020.

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.

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. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

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 2020, that amount is $12,400 per taxpayer (this is the amount for tax year 2020, which you would use when filing your taxes that are due in spring 2021). 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 ($24,800 in 2020). 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 YearSingleMarriedHead 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

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.

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 in 2020. 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 $1,100 in 2020. 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. Securities trading is offered through Robinhood Financial LLC.

20210324-1577052-4730616

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.


© 2021 Robinhood. All rights reserved.

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.

1476799