Tax season 2023: What are standard deductions? Explanation and examples

The standard tax deduction is a predetermined amount of income that you are permitted to deduct from your taxable income without having to answer any questions about the deduction.

If you don’t use Schedule A of Form 1040 to itemize your deductions, the IRS lets you take the standard deduction instead, which reduces your taxable income by a set amount. Each taxpayer’s standard deduction is calculated independently of others depending on their filing status, age, and whether or not they are disabled or listed as a dependant.

Abatement of Income

People and businesses may lower their taxable income by deducting certain costs. Taxpayers may either itemize their deductions, provide supporting documentation to the Internal Revenue Service (IRS) if audited, or they can take a standard deduction and save the hassle. The term “standard deduction” describes the fixed sum.

Introduction to the Standard Deduction

All taxpayers are guaranteed some level of tax-free income thanks to standard deductions. Due to inflation, the standard deduction amount is usually raised per year. Commonly, you may choose between taking the standard deduction and itemizing your deductions. You cannot make use of both in the same calendar year. In many jurisdictions where federal income tax is not levied, residents may still take advantage of a standard deduction on their state tax return.

Calculating the Standard Deduction

Your eligibility for a certain filing status determines how much of a standard deduction you are entitled to claim. For example, a $12,950 standard deduction is available to those who file as single or married but file separate returns in 2022. A standard deduction of $19,400 is available to taxpayers filing as “head of household” (i.e., unmarried persons with dependents), whereas the amount is doubled for married couples filing jointly ($25,900).

A tax break for the standard increases

Those 65 or older, legally blind, or both are eligible for a higher standard deduction under the federal income tax system. People who are either fully or partly blind are eligible for the blindness adjustment from the Internal Revenue Service. You will need a certified declaration from an eye specialist to prove that you are legal “partially blind,” which the Internal Revenue Service defines as having a field of vision of no more than 20 degrees or corrected vision of no greater than 20/200. In addition, age and blindness discounts are available in several states.

Circumstances that are out of the ordinary

The federal standard deduction is not available to all taxpayers. If you and your spouse are married but want to file your taxes separately, and your spouse plans to itemize their deductions, you will not be able to take advantage of the standard deduction. If you or your spouse (if filing jointly) were a nonresident alien at any point during the tax year, you cannot take this deduction. Finally, you cannot take advantage of the standard deduction if you submit a return covering a period that is less than one year because you have changed your annual accounting period.

Taking the standard deduction vs itemizing

Claiming the standard deduction instead of your actual deductions is much easier, but it might cost you more. Therefore, the Internal Revenue Service advises you to calculate which choice would result in a more significant tax break for you.

If you made significant gifts to charity, paid a hefty mortgage interest and property tax bill, or had high out-of-pocket medical costs, itemizing may benefit you.