Don’t get me wrong, I’m glad to have more deductions on my return these days. I just appreciated the simplicity of the standard deduction. Who knows, maybe I’ll get back there some day when I pay off the house note.
The Standard Tax Deduction
The standard deduction is the IRS’s way of accounting for a baseline of taxpayer expenses. Everyone has a few “standard” living expenses, right? The government has decided by way of the tax code to not tax income that is used to cover the basics of life. Thus, the standard deduction. The standard deduction reduces your adjusted gross income, and in effect, reduces the amount of tax that you are required to pay.
How much is this deduction? Let’s view the standard tax deduction amounts for the last few years.
|Tax Year||Single||Married Filing Jointly||Head of Household|
Note that a slightly higher standard deduction can be taken if you or your spouse are blind or over 65. Also, the standard deduction is limited if your income doesn’t reach certain levels (see IRS Pub 501). Finally, note that it cannot be taken if your spouse filed married filing jointly and chose to itemize.
So how do you apply this standard deduction? Well, let’s use an example. Let’s say your adjusted gross income (the number at the bottom of page 1 of the Form 1040) is $50,000. You are single. Therefore your standard deduction of $6,100 is subtracted from $50,000. This means that $43,900 minus your personal exemptions will be your taxable income, the number that is applied against the federal tax rates.
Standard vs Itemized Deductions
As a taxpayer, you must choose (see picture above) whether to take the standard deduction or whether to itemize your deductions on Schedule A. Which ever deduction is greater should be the one you choose (there’s your basic math lesson for the day). In general, it works out in your favor to itemize if you have mortgage interest, real estate taxes, charitable contributions, and major out of pocket medical expenses. Any basic tax software program will be able to handle this calculation for you.
What about you? Do you take the standard deduction?