Standard Deduction
Candlefocus EditorThe Standard Deduction is an important tool for taxpayers in order to reduce their taxable income and tax liability. It is a fixed sum determined by the Internal Revenue Service (IRS) that allows individuals to deduct a certain portion of their adjusted gross income (AGI) from their taxable income. This makes tax preparation simpler and more straightforward by eliminating the need to keep track of every possible qualifying expense.
The amount of the standard deduction depens on your filing status and other criteria, such as age and family size. The IRS adjusts the standard deduction and other tax law each year to keep up with inflation. As of 2021, the standard deduction for single or married filing separately is $12,550, for head of household is $18,800 and for married filing jointly is $25,100. In addition, persons 65 or older or blind receive an additional standard deduction of $1,650 for single or head of household or $1,300 for married filing jointly.
The choice of taking the standard deduction or itemizing deductions depends on your own unique situation. For example, if you have medical expenses that exceed 7.5% of your AGI or your state and local taxes are above the standard deduction amount, then you could benefit from itemizing deductions.
However, for most individuals, the standard deduction is often the preferred choice since it simplifies the process of filing taxes and is generally the most convenient and cost effective option. With the standard deduction, taxpayers don’t have to worry about tracking and proving the various expenses that qualify for itemization. Additionally, when you use the standard deduction, you don’t have to worry about calculating and verifying each and every expense associated with itemizing deductions.
In an effort to help taxpayers reduce their tax bill, it’s important to be aware of the standard deduction and how it can be used. If you do choose to take the standard deduction, make sure that you understand your filing status and any other criteria that may apply in order to make sure you’re taking the right amount. Also, it’s important to consider both the standard deduction and itemizing deductions when filing your taxes to make sure you’re taking the deduction that is most beneficial to you.