It's never too late to start thinking about how you plan on doing your taxes, and one of the biggest things to consider come tax season is what you plan to do regarding deductions.
Tax deductions can help limit the amount of taxable income you claim on your forms, cutting you some helpful tax breaks in the process. The year you had will ultimately help you determine which deductions you can or should claim. One of these that will always be an option is the standard deduction.
Statistically, most taxpayers in a given year claim the standard deduction. But what is the standard tax deduction, how much is it and is it the right deduction for you this year?
What Is the Standard Deduction?
The standard deduction offered by the Internal Revenue Service is, as the name would suggest, the standard tax deduction offered to taxpayers on their Form 1040. There are situations where taking other deductions renders you unable to claim it, but the standard deduction is one of the primary options the IRS gives you for deductions.
A standard tax deduction is a flat number deducted from your taxable income. The specific figure depends primarily on your filing status, but there are other factors that impact it as well.
The standard deduction goes up a little each year, but made a particularly high leap last year. That is due to the passing of the Tax Cuts and Jobs Act (TCJA), which increased the standard deduction (but eliminated the personal exemption.) In 2017, the standard deduction for a single filer was $6,500. In 2018, it was $12,000. For 2019, it will be returning to its more incremental year-to-year increase.
The standard deduction can make a substantial difference for taxpayers, decreasing thousands of dollars from their taxable income. Depending on what your gross income was prior to the standard deduction, that could change the tax bracket and decrease not just the amount you're getting taxed but the rate at which it is taxed.
About 70% of taxpayers chose the standard deduction before the changes. But in the wake of the increased deduction, it was estimated after the TCJA passed that this number could increase to 90%.
Standard Deduction 2019: How Much Is It?
So you know what the standard deduction is, and maybe you're thinking of claiming it now that you've seen how much it has increased. But what is it actually going to be for the coming tax season?
As mentioned previously, generally the amount you can deduct via the standard tax deduction will depend on how you're filing your taxes.
Your filing status determines your standard deduction. For 2019, your standard deduction based on your filing status is as follows:
|Filing Status||Standard Deduction in 2019|
|Married filing jointly||$24,400|
|Married filing separately||$12,200|
|Head of Household||$18,350|
Most of these are percentage increases of 1.67% on the year prior. The exception there is those filing as the head of household, which has increased by 1.94%.
In addition, you can only claim the standard deduction while married filing separately if your spouse also claims it.
If you got an extension this year and you're still filing your taxes for 2018, here is what the standard deduction would be:
|Filing Status||Standard Deduction in 2018|
|Married filing jointly||$24,000|
|Married filing separately||$12,000|
|Head of Household||$18,000|
Age and Blindness
There are some other factors that can cause a different standard deduction than the ones mentioned above.
One such factor is age. Taxpayers age 65 and over are going to have different standard deductions, as are taxpayers who are legally blind. Both types of taxpayers have the exact same differences in standard deductions. For married taxpayers that fall into these categories, the standard deduction increases by $1,300. For single or head of household taxpayers that fall into these categories, it increases by $1,650.
If you can be claimed as a dependent, you're still eligible for the standard deduction. However, the amount decreases. For the 2019 tax season, in this instance you are unable to claim more than $1,100 or the amount of your unearned income plus $350.
Example of Standard Deduction
Let's take a look at what the standard deduction can do to your tax return.
Let's say you're a single person filing taxes with a gross income of $50,000. Without the standard deduction, you place in the 22% tax bracket, and $6,859 of that would be taken by the IRS as tax.
But if you're able to claim the entire standard deduction, that reduces your taxable income by $12,200, bringing it down to $37,800. That means your highest tax bracket is 12%, so your tax would be $4,342.
Even deductions that don't cause a change in your highest tax bracket will result in a sizable change in taxes. Say you're a married couple filing jointly, with gross income of $300,000. That amount would have $60,349 in taxes due. Claiming your entire standard deduction drops that down to $275,600, $54,493 of which would be taken as tax.
When Do You Not Qualify for a Standard Deduction?
The standard deduction is available to most, but there are some instances that result in you being unable to claim it.
As mentioned above, if you are married and filing separate returns, both of you need to claim the standard deduction for either of you to. If one spouse decides not to, the other is unable to claim it for themselves.
If you have changed your annual accounting period and thus will be filing a return for a period of under 12 months, the IRS also deems you ineligible for the standard deduction.
Often, those who were either a dual status alien or nonresident alien at some point during the year are not eligible to claim the standard deduction, but there are exceptions to this. If you are a nonresident alien and marry a resident alien or U.S. citizen, you may be able to claim the standard deduction but only if you file a joint return and choose to treat the nonresident alien as a U.S. citizen.
The most common way to become ineligible for the standard deduction, though, is by choosing to itemize your deductions instead.
Standard Deduction vs. Itemized
You can claim the standard deduction, or you can itemize deductions, but you cannot do both.
Itemized deductions are certain expenses that the IRS allows you to deduct from your taxable income. They can be found on Schedule A of your 1040 Form, which lists some of the more common itemized deductions while giving you room to write in others.
Medical and dental expenses are an example of deductions that can be itemized, albeit only the amount that exceeds 7.5% of your adjusted gross income (AGI). The IRS provides myriad examples of which expenses can be deducted on their website.
Certain state and local taxes can also be deducted. This can include certain forms of state and local sales, real estate and property taxes.
Other expenses that you may be able to turn into itemized deductions include:
- Home mortgage points
- Qualified mortgage interest
- Investment interest
- Charitable contributions
- Casualty, disaster and theft losses
- Expenses related to business use of your home
- Expenses related to business use of your car
- Expenses related to business travel
- Work-related education expenses (tuition, textbooks, lab supplies, certain transportation costs, etc.)
When filing your tax return, you'll need to decide if you have enough itemized deductions to make it the better option for you than the standard deduction.
What Deductions Can I Also Claim With the Standard Deduction?
You may not be able to claim itemized deductions along with the standard one, but there are a number of others you can. These are referred to as above-the-line deductions.
Admittedly, above-the-line deductions can be very specific. But if one or more apply to your particular situation, they can be a boon to your tax return.
For example, if you're one of the millions of Americans riddled with student loan debt, you may qualify for the student loan interest deduction. If you have a qualified student loan and a modified adjusted gross income (MAGI) at or below a certain range ($80,000 for single or head of household filers, $165,000 for married filing jointly), you can deduct up to $2,500 from your adjusted gross income.
Those who are self-employed must pay the self-employment tax. It is a tax of 15.3%, but you are allowed to deduct half of that tax from your income.
Contributions to certain retirement accounts can also be deducted from your taxable income, such as a 401(k), 403(b) and a 457 plan. You get to save up for your retirement and get a little tax break all at the same time.
Certain savings accounts that are designed for health care can also give you some tax savings as well, up to a certain point. Contributions to your health savings account (HSA), for example, are tax-deductible.
These and more, combined with the standard deduction, can take quite a bit from your adjusted gross income and alter the rate at which it will get taxed.
How to Claim the Standard Deduction
One of the complaints about itemized deductions is how complicated they can be both to find and add up, especially due to recent changes to the 1040 that involve attaching different schedules to it based on what you need to add or subtract from your income.
The standard deduction, though, is significantly less complicated. You already know how much it is for you, more or less, based just on how your filing. To claim it, you don't need any schedule, just the 1040 form itself. There, on line 8, you can input either your standard deduction or the combined amount of your itemized deductions. Even more helpful, at least on the 2018 form 1040, is that to the left of line 8 is a helpful guide to what you should put if you plan on claiming the standard deduction.
Should You Claim the Standard Deduction?
There's no context-free right decision to be made between the standard deduction or itemized deductions. It's simply going to depend on which one will help you more.
The reason the standard deduction is more commonly chosen, especially now that it has increased so much more, is that it is so often higher than the combined itemized deductions. But that isn't the case for everyone. Some years you may be unfortunate enough to incur way more medical expenses than you thought you would. Perhaps in a joint return for a married couple, there is not just medical expenses but higher real estate taxes and a lot of business-related education and travel expenses. It's possible to add everything up and find that it actually equals more than you would have deducted via standard deduction. In a case like this, you'd be better off itemizing your deductions and claiming them.
If that isn't the case, though, and your itemized deductions wouldn't add up to anything close to the standard deduction, than the better move would be to claim the standard one.
It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet's Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com.