Taxpayers have the option of claiming the standard tax deduction or itemizing their deductions (listing them separately) by whichever reduces their tax liability the most. Here is a breakdown of the two.
A standard deduction refers to a set dollar amount that can reduce your income tax bill. The deduction depends on your tax filing status. For the 2017 tax year, the applicable standard deduction is as follows:
- $6, 350, if you are single or you are married and filing your returns separately.
- $12,700, if you are married and filing your returns jointly or if you are a qualifying widow (or widower).
- $9,350, if you are head of a household.
The standard deduction rises for taxpayers who are 65 years and above or blind. It goes up by $1,550 for single people or heads of households and it increases by $1,250 for married people or qualifying widows (or widowers).
Approximately two out of three taxpayers make standard deduction claims. The standard deduction:
- Grants the taxpayer the right to a deduction even where they have no expenses that are eligible for claiming itemized deductions;
- Removes the need for itemizing deductions such as donations to charity and medical expenses;
- Enables the taxpayer to avoid maintaining records and receipts for their expenses in the event that they are audited by the IRS.
An itemized deduction lowers the taxable income for a taxpayer. For instance, if you belong to the 15 percent tax bracket, each itemized deduction worth $1,000 removes $150 from your tax bill.
A taxpayer may benefit from itemizing their deductions on form 1040(A) if :
- The total of their itemized deductions exceeds the standard deduction they would get.
- They have significant uninsured dental and medical expenses.
- They have paid real estate taxes and mortgage interest on their home.
- They are employees and have substantial unreimbursed expenses.
- They have suffered massive and uninsured theft or casualty (from wind, fire, and flood).
- They have made sizable contributions to qualified charitable organizations.
- They have sizable miscellaneous expenses that have not been reimbursed.
But the total of your itemized deductions may be less than the standard deduction amount. If that is the case, you might still itemize deductions instead of claiming the standard deduction. You may wish to do this if it would result in paying less tax. This can occur if you itemized your state return and got a bigger tax benefit than you could if you were claiming the standard deduction on the federal tax return.
In the event that a taxpayer’s adjusted gross income (or AGI) in line 37 of form 1040 was greater than specific amounts, a few of his or her itemized deductions were limited. With regard to 2017, the limitations are applicable if your AGI exceeds:
- $309,900, and you are married and filing joint returns or you are a qualifying widow (or widower).
- $284,050, and you are considered the head of household.
- $258,250, and you are a single taxpayer.
- $154,950, and you are married but you are filing your returns separately.