To simplify tax calculations and to reduce the burden of auditing itemized deductions by the Internal Revenue Service (IRS), tax law provides for a standard deduction that most taxpayers can choose if it is greater than their itemized deductions. This is one of the deductions that is considered an adjustment from gross income. Sometimes, Congress has set the standard deduction to be equal to the poverty level, but this has not been consistent. Nowadays, the standard deduction is considerably less than the poverty level. Nonetheless, most people do claim the standard deduction rather than itemize. About 65.6% of all returns claimed the standard deduction. Although one ostensible goal of the standard deduction is to allow poor people to keep more of their money, the standard deduction does not save on payroll taxes, which is generally the greatest tax burden on poor people.
The standard deduction is a specific amount, adjusted annually for inflation, which can be deducted from adjusted gross income to arrive at taxable income, and varies according to the filing status of the taxpayer. However, no standard deduction can be claimed when calculating the alternative minimum taxable income (AMTI).
Some taxpayers are ineligible for the standard deduction. These include married taxpayers filing separate returns where one spouse itemizes his deductions, in which case, the other spouse cannot claim the standard deduction, even if the spouse is 65 or older or blind or both unless one spouse also qualifies to file as head of household. There is also no standard deduction for nonresident aliens, estates or trusts, partnerships, and individuals with a short tax year because of a change in their annual accounting period. A dual-status alien who was not a resident of the United States for any part of the tax year cannot take a standard deduction unless the taxpayer files a joint return with a spouse who is a United States citizen or resident and elects to be taxed on worldwide income.
There are 2 types of standard deduction: the basic standard deduction and the additional standard deduction.
Basic Standard Deduction
The basic standard deduction can be claimed by most taxpayers and is based solely on filing status. Because the standard deduction is so high, most taxpayers claim the standard deduction rather than itemize deductions.
Married filing separately
|Head of household||$18,350|| |
|Married filing jointly, |
Qualifying surviving spouse
|Kiddie Tax Standard Deduction||$1,100||$1,050||$1,050||$1,050||$1,050||$1,000||$1,000||$950||$950|
Starting in 2018, under the new tax package passed by the Republicans at the end of 2017, known as the Tax Cuts and Jobs Act, the personal exemption is completely eliminated, . However, the standard deduction is increase to $12,000 for singles and $24,000 for joint filers, the child tax credit is doubled, with up to $1400 being refundable, and a $500 credit can be claimed for dependents other than children. Additionally, the Pease phaseout of itemized deductions does not apply until 2026.
If a child is subject to the kiddie tax, then:
- Standard Deduction = Greater of Kiddie Tax Standard Deduction or Earned Income + $300, up to the standard deduction for earnings, listed in the above table.
Additional Standard Deduction
There is also an additional standard deduction for taxpayers who are at least 65 or blind. The taxpayer can claim an additional standard deduction for a qualifying spouse, but not a dependent. Hence, married taxpayers filing jointly can claim an additional standard deductions if they're both over 65 or blind by the end of the tax year or on January 1 of the following year.
A married taxpayer can claim the additional standard deductions for a spouse who had no gross income nor was claimed by another taxpayer as a dependent. However, the taxpayer cannot claim the additional standard deduction if the spouse was also claimed as a dependent.
The requirements for the additional standard deduction for blindness include a certified statement from the doctor or registered optometrist that states that the individual cannot see better than 20/200 in the better eye with glasses or contact lenses; or that the individual's field of vision is 20° or less.
|Single, Head of Household||$1,650||$1,600||$1,550||$1,550||$1,550||$1,550||$1,500||$1450||$1450|
|Joint and Separate Filers, Surviving Spouses||$1,300||$1,300||$1,250||$1,250||$1,250||$1,200||$1,200||$1150||$1150|
Each taxpayer may claim double the additional standard deduction if they are both 65 or older and blind.
Benefit of Itemized Deductions over the Standard Deduction
Since anyone can claim the standard deduction, the benefit of claiming itemized deductions is limited to the amount that exceeds the standard deduction:
Additional Deduction Over Standard Deduction = Total of Itemized Deductions – Standard Deduction
The apportioned benefit of any given itemized deduction can be calculated by the following formula:
|Itemized Deduction Benefit||=||Itemized Deduction||×||Total Itemized Deductions |
– Standard Deduction
Total Itemized Deductions
Example: The Apportioned Benefit of Claiming a Particular Itemized Deduction over Claiming the Standard Deduction
Suppose you have investment interest expenses of $2000 out of a total of $10,000 of itemized deductions. Since the interest on loans that were used to purchase investment property is an itemized deduction, the value of this $2000 deduction over claiming the standard deduction is as follows:
- Investment Interest Expense = $2000
- Total Itemized Deductions = $10,000
- Standard Deduction = $6000
- Investment Interest Deduction Benefit over Standard Deduction = $2000 × ($10,000 – $6000)/$10,000 = $2000 × $4000/$10,000 = $800