How to Use the Standard Tax Deduction

Most Taxpayers Use the Standard Deduction to Reduce Their Taxable Incomes

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The Internal Revenue Service doesn't expect us to pay tax on every single dollar of income. It's understood that it costs us money to live, so the IRS lets us keep some income that it doesn't demand a share of. It offers taxpayers two options for reducing their taxable incomes.

Individuals can deduct the amount of the tax year's standard deduction, or they can add up everything they spent on tax-deductible expenses over the course of the year, such as medical expenses, charitable giving, and work-related expenses, then subtract the total from their incomes.

It's an either/or situation. You can't do both. The personal exemption amount and the standard deduction or itemized deductions reduce your adjusted gross income to arrive at your taxable income. 

You'll want to choose the option that will reduce your taxable income—and, by extension, your tax liability—the most, giving you the best possible savings on your tax return. According to the IRS, about 60 percent of taxpayers choose the standard deduction. 

How Much Is the Standard Deduction?

The standard deduction you qualify for depends on your filing status, your age, and whether you're blind. The number is adjusted each year to keep pace with inflation. These are the standard deduction amounts for current years. 

Standard Deduction Amounts
Filing StatusYear 2016Year 2017
Head of Household$9,300$9,350
Married Filing Jointly$12,600$12,700
Married Filing Separately$6,300$6,350
Qualifying Widow or Widower$12,600$12,600
Additional Standard Deduction for Blindness or Age
Single or head of household$1,550$1,550
Married filing jointly, Married filing separately, or qualifying widow or widower$1,250$1,250

The Additional Standard Deduction Based on Age or Blindness

People who are age 65 or older and individuals who are legally blind receive an additional standard deduction. It's calculated by adding the taxpayer's standard deduction based on his filing status plus the additional amount noted in the chart above.

A single taxpayer who is age 65 would be entitled to a standard deduction of $7,900 in tax year 2017: The regular standard deduction amount of $6,350 plus an additional $1550. 

Special Rule for Married Couples Filing Separate Returns

You and your spouse must both take the standard deduction or you must both itemize your deductions if you're married but filing separate returns. You can't mix-and-match with one spouse itemizing and the other taking the standard deduction. It usually makes sense to figure your taxes both ways with each spouse itemizing and each spouse taking the standard deduction to find out which yields the best overall tax savings for you. 

Standard Deduction Amounts for Dependents

Taxpayers who can be claimed as dependents on someone else's tax return have variable standard deduction amounts. As of 2017, your standard deduction is limited to either $1,050 or your earned income plus $350, whichever is more. The deduction is capped at the amount of the standard deduction for your filing status—it can't be more. 

Potential Changes to Standard and Itemized Deductions 

This could all end up changing rather dramatically beginning with tax year 2018. House Republicans rolled out the Tax Cuts and Jobs Act in November 2017, which would effectively double the standard deduction while simultaneously taking away some itemized deductions.

These rules are pending the outcome of that legislation. 

The new bill proposes a standard deduction amount of $12,000 for single, head of household, and married taxpayers who file separately, and a $24,000 standard deduction for married taxpayers filing jointly. On the surface at least, this could make claiming the standard deduction much more attractive, particularly because the bill would eliminate some oft-claimed itemized deductions, including those for medical bills, state income taxes, and local sales taxes. These expenses can really add up to a significant tax deduction over the course of a year. 

But it remains to be seen whether the bill will pass in its current form or even at all. The Senate is expected to introduce its own version of a tax plan on the heels of the Tax Cuts and Jobs Act.

You'll want to keep an eye on the situation as it unfolds if you're contemplating whether to claim the standard deduction or itemize. The Act will not change the status quo for the 2017 tax year, even if it promptly passes. The changes would apply to income earned and deductions claimed in tax year 2018, or possibly even later. It all depends on when and if the bill is signed into law.