What is the Standard Deduction?
The standard deduction is a tax deduction that most people filing US income taxes can take as long as they do not itemize their tax deductions. The standard deduction reduces taxable income.
The size of the standard deduction depends on the taxpayer’s filing status. The most common differentiating factor is that married couples filing jointly are allowed a larger standard deduction than single people or married couples filing separately.
How This Deduction Works
The amount of the deduction depends on a taxpayer’s filing status.
A single person is eligible to take a smaller deduction relative to a married couple filing jointly. The table below shows the standard deductions for 2019. The IRS sets the deduction amounts each year and they are subject to change.
For example, a single person who earns $40,000 in gross income can take the deduction of $12,200 according to IRS rules.
In this case, the individual’s taxable income would drop to $27,800. In other words, the first $12,200 of this person’s income would not be subject to federal income taxes.
Not everyone is eligible to take the standard deduction; the list includes married people filing separately whose spouses itemized, nonresident aliens and their spouses, trusts, and estates.
And, of course, this deduction is not available to those who itemize their deductions.
Taking the Standard Deduction vs. Itemizing
The IRS allows taxpayers to itemize deductions for tax purposes. If a taxpayer chooses to itemize their deductions, they must keep track of every major expense that could be considered a tax deduction and then reduce their adjusted gross income by those deductions to determine their taxable income.
If a taxpayer itemizes their deductions, they are unable to claim the standard deduction.
However, many tax filers, particularly families who own houses and live in high-tax states, find that itemizing deductions reduces their tax burden.
The list of deductions that can be taken is extensive; the table below highlights some of the most common.
For most people, the choice between taking the regular deduction and itemizing comes down to numbers.
One advantage of taking the standard deduction is that you do not need to keep track of every deductible expense. Some people simply haven’t kept good records or do not want to go through all their expenses to figure out if itemizing makes more sense.
Either way, it is good to be aware that there are different ways to handle income taxes.