Earned income is subject to federal taxes. To legally reduce the tax liability owed on earned income, taxpayers can claim deductions and tax credits when filing their annual tax return. There are several tax deductions which lower the amount of income subject to tax, with taxpayers having a choice between claiming the standard deduction or itemized deductions. To ensure your choice is the right one, consider the following information regarding the standard deduction and how it will lower your taxable income.
The IRS describes the standard deduction as “a dollar amount that reduces the amount of income on which you are taxed.” Filers choosing to use the standard deduction cannot itemize deductions as well. For this reason it is important to understand which option reduces your taxable income the most to ensure you are choice will save you the most money when filing your tax return. When claiming the standard deduction, the amount of the deduction varies based on your filing status, age and special consideration is given to filers who are blind. The dollar amount is also subject to inflation with adjustments being made each year to reflect changes in the economy. For 2010, the standard deduction amounts are as follows (2011 Standard Deduction amounts, 2012 Standard Deduction amounts);
These amounts may change if you are blind, over the age of 65 or another taxpayer claims you as an exemption when filing their tax return.
To decide which option is best for you, it must first be determined if you are eligible for the standard deduction and if so, if that choice lowers your taxable income the most. Taxpayers who are not eligible for the standard deduction include; nonresident aliens, individuals who due to a change in accounting periods file returns for periods less than 12 months and dual-status aliens. In addition if a married couple files separately the must claim the same option for deductions. If one spouse itemizes, the other spouse is ineligible for the standard deduction and must also itemize deductions. If after considering all the eligibility requirements you determine you are eligible for the standard deduction, compare the amount to which you qualify with the amount you could claim through itemized deductions. The option which lowers your taxable income the most is the best choice.
If you have determined you are eligible for the standard deduction and this option is the best choice to lower your taxable income, claiming the deduction is relatively simple. You can claim the standard deduction using Forms 1040, 1040A or 1040EZ. For taxpayers who qualify for additional standard deductions, Schedule L must also be attached. This is for those claiming new motor vehicle taxes or a net disaster loss. All forms needed to claim and file the standard deduction can be ordered from the IRS either via telephone at 800-829-3676 or online at the IRS website (or through your tax preparation software program).
This post was published on April 14, 2011