The vast majority of people subject to filing a federal income tax form with the United States Internal Revenue Service are entitled to what is known as a standard deduction. What is it and how does it work? Are there instances where it actually makes sense to decline the standard deduction?
The Standard Deduction
The standard deduction (SD) is the amount you are allowed to directly subtract from your annual earnings that are subject to federal tax. For instance, if you had gross earnings of $50,000 dollars in a single year and the SD available to you was $7,000, your adjusted income would be $43,000. That is the new amount you would use to calculate the tax you owe. In essence, the SD is a tax exemption available to each taxpayer.
Standard Deductions and Filing Statuses
Exactly how much you are allowed to claim as a SD varies and the specific amount is mostly dependent on your personal tax filing status. The IRS recognizes six different filing status categories for the purposes of determining the value of a SD. Those categories, with the associated SD, are:
- Single (unmarried or legally separated): $5,950
- Head of Household: $8,700
- Married, Filing Jointly: $11,900
- Married, Filing Separately: $5,950
- Qualifying Widow or Widower, With Dependent Child:
- Dependent: $950-$5,950 (the exact amount for the standard deduction for dependents is variable depending on the income, if any, earned by the dependent; the upper limit cannot exceed the SD that applies to the filing status of the dependent, or $5,950—the SD for a Single filer)
There are a couple of other considerations that apply to determining the value of your SD. If you are 65 years of age or older, or if you are legally blind, you are entitled to an additional deduction. The specific amount of the additional deduction is dependent on your filing status:
- $1,450 for Single and Head of Household Filers
- $1,150 for Married Filing Jointly, Married Filing Separately and Qualifying Widows or Widowers
This amount is simply added to the general SD. So, a person aged 70 filing as a Single taxpayer would be entitled to a deduction of $7,400 ($5,950 + $1,450).
Declining the Standard Deduction: When Does it Make Sense?
Part of the tax filing process involves deciding whether to itemize your deductions or not. The current United States federal tax code involves significant deductions for all kinds of expenses, including mortgage interest, certain state and local taxes, charitable contributions, medical and dental expenses and a wide variety of additional categories. Depending upon your circumstances, the total value of your eligible itemized expenses may exceed the SD to which you are entitled. In that instance, it makes sense to decline the SD and itemize instead. If you are married and filing separately and your spouse itemizes his or her deduction, you must do the same and are ineligible for the SD.