What is the Standard Deduction and When Should You Take It?
The standard deduction is a mechanism that reduces the amount of income that’s eligible for tax. For the current tax year, the standard deduction is worth $12,000 for single taxpayers and $24,000 for married taxpayers filing jointly. If you’re filing as the head of household, it’s worth $18,000.
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How Does the Standard Deduction Work?
You can claim the standard deduction even if you don’t qualify for any other tax credits or deductions. Every taxpayer is entitled to it, no questions asked. This can make a big difference regarding the amount of tax you pay.
But you have a choice to make. You can either take the standard deduction or itemize your tax return to get a bigger deduction. You can’t take both.
Your itemized expenses are essentially individual expenses that the IRS classifies as deductible. There’s no hard and fast rule for which option you should take.
For example, if you take the standard deduction, you won’t be able to take other popular tax deductions. These include but are not limited to medical expenses, mortgage interest, and donations to charity.
If you do decide to itemize, you should keep the receipts in case the IRS decides they want to audit you.
From 2017 to 2018, the standard deduction amount was doubled for all filing statuses. You should remember that if you’re blind or over the age of 65, the standard deduction amount goes up by $1,300. It’s $1,600 higher if you’re unmarried, and you’re not a surviving spouse.
If anyone is claiming you as a dependent, though, you’ll get a smaller standard deduction.
Our advice is that while claiming the standard deduction is much easier, you should always look into itemizing to see if you can claim a larger deduction.
When Should You Claim the Standard Deduction?
The number one rule you need to remember is that if itemizing your deductions leads to a higher deduction amount, you should take it. However, if there’s not much of a difference, you should take the standard deduction so you can save a lot of time and effort. Plus, you’re less likely to be audited.
It must be worth your time.
Generally, if you’ve taken out a mortgage or a home equity loan, you should look into whether itemizing would save you money.
For this, you should have Form 1098, known as the Mortgage Interest Statement. Your lender will send you this at the end of the year.
Compare the mortgage interest rate deduction with the standard deduction. Then add in any deductions for state income taxes, sales taxes, and property taxes and see what number you get.
Then you know which option is best.
Should I Use the Standard Deduction or Itemized?
If you use online tax software, you can claim the standard deduction or the itemized deduction. Their software will tell you which is best for your situation.
This way, the software will run your return in both directions and tell you what type of deduction will give you the biggest tax refund or amount owed.
Even if you still take the standard deduction, you can be sure that you’re making the right choice.