What is a deduction? A tax deduction lowers your amount of taxable income. In other words, it is an amount that you get to subtract from your total income before taxes are calculated, lowering the amount of taxes you have to pay. When filing your taxes you have two choices, you can take the standard deduction, or you can itemize your deductions. This article will focus on the standard deduction.
The Standard Deduction Explained
The standard deduction is a specific amount that tax filers can apply to lower their taxable income. This amount varies depending on your filing status. The following table outlines the standard deduction amount for each filing status for the 2022 tax year (generally applied to filings completed in early 2023).
|Tax-Year 2022 Standard Deduction|
|Individual Single Filer||$12,950|
|Married Taxpayers Filing Jointly (or Qualifying Widow(er))||$25,900|
|Married Taxpayers Filing Separately||$12,950|
|Head of Household Filer||$19,400|
Let’s look at an example.
Suppose you are single. You made $46,000 during the year 2021. You decide you want to take the standard deduction, what does this mean? It means $12,950 of your $46,000 will not be taxed. When you file your 2022 tax return, you will only owe taxes on $33,050.
It is important to note that if you are over 65 years of age at the end of the tax year, or if you are blind, there is an additional amount you can add to the standard deduction. This amount varies based on your filing status and the number of filers over 65 years of age and/or blind.
Does the standard deduction amount change?
The standard deduction is adjusted yearly by the IRS. The following tables show the standard deduction amounts for the tax year 2021 (generally applied to filings completed in early 2022).
|Tax-Year 2021 Standard Deduction|
|Individual Single Filer||$12,550|
|Married Taxpayers Filing Jointly (or Qualifying Widow(er))||$25,100|
|Married Taxpayers Filing Separately||$12,550|
|Head of Household Filer||$18,800|
As you can see between the tax year 2021 and tax year 2022, the amounts changed slightly. For the tax year 2022, the standard deduction for single filers and those married filing separately rose by $400 from 2021. For those married filing jointly, it rose by $800 and for those filing as head of household, it increased by $600.
Are deductions the same thing as credits?
No. As we discussed earlier in this article, deductions reduce your taxable income. Credits on the other hand reduce the amount of taxes you owe. This may sound like the same thing, but it is not. For example, let’s calculate your potential tax amount with a $100 deduction versus a $100 credit. If you fall into the 22% bracket, a $100 deduction could lower your tax bill by $22. A $100 tax credit, in contrast, would lower your tax bill by $100. A credit is matched dollar for dollar and may increase your refund amount.
Can anyone claim the standard deduction?
While most taxpayers can select to apply the standard deduction, there are some exceptions. If any of the below points apply to you, you cannot claim the standard deduction.
- If you are married filing separately and your spouse itemizes their deductions.
- If you were a nonresident alien or dual-status alien during the year (although there are a couple of exceptions, which can be found on the IRS’s website).
- If you are filing a return for a period less than 12 months due to a change in your annual accounting period.
- If you are filing as an estate or trust, common trust fund, or partnership.
How do you claim the standard deduction?
The standard deduction is applied when you are filling out Form 1040. On line 12a, you will enter either the standard deduction amount for your filing status or the total itemized deductions amount (from Schedule A). As you fill out the form, you will subtract the deduction amount from your income amount to determine your taxable income.
How do I know whether I should itemize my deductions or claim the standard deduction?
If you cannot claim the standard deduction, you must itemize your deductions. Additionally, if your expenses exceed the standard deduction amount, you should itemize your deductions. However, on average, most people can just take the standard deduction. If you are unsure, consider the following expenses. If you:
- Made large contributions to qualified charities
- Paid a significant amount in mortgage interest or real property taxes on your home
- Had major (uninsured) losses from a Federally declared disaster
- Had other large “Other Itemized Deductions” (line 16 on Schedule A form)
- Paid a significant amount in local taxes, including state sales taxes
Then, it might be a good idea to fill out the Schedule A form to see if you would be better off itemizing. If you add up the expenses, and they are less than the standard deduction, you should claim the standard deduction.
You may be wondering how to increase your itemized deductions so you can have less taxable income, but to do that, you must increase certain expenses. The most common way to increase your itemized deduction amount is to contribute more to qualifying charitable organizations. However, keep in mind, as we already discussed, deductions are not the same as credits. Contributing $1,000 to a charity does not lower your tax bill by $1,000.
Are there any other deductions that can be applied along with the standard deduction?
There are a few deductions that can be applied even if you take the standard deduction. These deductions are entered on Form 1040 line 10, using the Schedule 1 form. Some of these deductions include student loan interest, part of your self-employment tax, retirement contributions for the self-employed, and health insurance premiums for the self-employed.
Also, you can claim some charitable donations even if you claim the standard deduction. You can deduct up to $300 for single filers, and up to $600 for married couples filing jointly. The donations must be made to organizations that are religious, charitable, educational, scientific, or literary in purpose.
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