How to Use the Standard Tax Deduction

Most taxpayers use the standard deduction to reduce their taxable incomes

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It costs money to live and the Internal Revenue Service gets that. The tax code allows us to put some of our incomes aside tax-free to help meet our living expenses. The IRS offers taxpayers two options for reducing their taxable incomes: the standard deduction or itemizing deductions. 

Tax payers can deduct the amount of the tax year's standard deduction on their tax returns or they can add up everything they spent on tax-deductible expenses over the course of the year, such as medical expenses, charitable giving, and work-related expenses, and subtract that total from their incomes instead.

"Instead" is the pivotal word here. It's an either/or decision so you'll want to choose the option that will reduce your taxable income—and, by extension, your tax liability—the most. This works out to determining which number is greater, the standard deduction available to you or the total of all your itemized deductions. 

According to the IRS, about 60 percent of taxpayers choose the standard deduction. 

How Much Is the Standard Deduction?

The standard deduction you qualify for depends on your filing status, your age, and whether you're blind. The number is adjusted each year to keep pace with inflation and the recently enacted Tax Cuts and Jobs Act increased it significantly in 2018. These are the standard deduction amounts for current tax years. 

Standard Deduction Amounts
Filing StatusYear 2017Year 2018
Single$6,350$12,000
Head of Household$9,350$18,000
Married Filing Jointly$12,700$24,000
Married Filing Separately$6,350$12,000
Qualifying Widow or Widower$12,700$24,000
Additional Standard Deduction for Blindness or Age
Single or head of household$1,550$1,600
Married filing jointly, Married filing separately, or qualifying widow or widower$1,250$1,300

The Additional Standard Deduction Based on Age or Blindness

People who are age 65 or older and individuals who are legally blind receive an additional standard deduction. It's calculated by adding the taxpayer's standard deduction based on his filing status plus the additional amount noted in the chart above.

A single taxpayer who is age 65 would be entitled to a standard deduction of $13,600 in tax year 2018: The regular standard deduction of $12,000 plus an additional $1,600. 

Special Rule for Married Couples Filing Separate Returns

You and your spouse must both take the standard deduction or you must both itemize your deductions if you're married but filing separate returns. You can't mix-and-match with one spouse itemizing and the other taking the standard deduction.

It usually makes sense to figure your taxes both ways with each spouse itemizing and each spouse taking the standard deduction to find out which yields the best overall tax savings for you. 

The Standard Deduction Amounts for Dependents

Taxpayers who can be claimed as dependents on someone else's tax return have variable standard deduction amounts. As of 2018, your standard deduction is limited to either $1,050 or your earned income plus $350, whichever is more. But the deduction is capped at the amount of the standard deduction for your filing status—it can't be more. 

2018 Changes—The Choice Might Have Gotten Easier 

The Tax Cuts and Jobs Act effectively doubled the standard deduction in 2018 and it simultaneously took away and modified some itemized deductions.

This might make the standard deduction a more preferable choice than itemizing for many taxpayers. 

For example, you can still claim an itemized deduction for state and local taxes you pay if you itemize, but they're now capped at $10,000. It used to be that if you paid $6,000 in income tax to your state and $6,000 in property taxes for your home, you got a $12,000 itemized deduction. Not anymore.

The deduction for home mortgage interest is still available but this has been tweaked, too. It used to apply to mortgages of up to $1 million on first and second residences. That's been reduced to mortgages of $750,000. You could also deduct the interest on home equity loans through 2018 but that provision has been eliminated as well. 

Casualty theft and loss deductions have been changed, too. There's no longer a deduction for stolen property and losses are limited to those that occur within federally declared disaster areas.

 

Miscellaneous deductions for unreimbursed employee business expenses have also been eliminated.

All this will make it more difficult to surpass $24,000 in itemized deductions if you're married and filing a joint return but you might want to do your return both ways—particularly if you think you have a lot of itemized deductions—to make sure that you're getting the greatest deduction possible. Every dollar counts. 

And keep in mind that these changes go into effect when 2018 taxes are filed in April 2019. They do not change the status quo for the 2017 tax year. The TCJA is also set to sunset or expire at the end of 2025 unless Congress renews it, so these terms might not be around forever.