What is the standard deduction?

The standard deduction is a fixed dollar amount that taxpayers can use to reduce the amount of their taxable income. They can decide whether to  claim the standard deduction  or itemize deductions. The standard deduction allows a taxpayer to take a deduction even if they have nothing to itemize. It also eliminates the need to itemize and reduces the need to keep expense receipts.

The alternative to taking the standard deduction is to take itemized deductions. Itemized deductions are specific expenses incurred during the year that will reduce your taxable income. You can potentially claim hundreds of itemized deductions.

Some of  the major deductions that can be itemized  include:

• Student Loan Interest
• Charitable donations
• medical expenses
• Residential Energy
• Home Office

The main advantage of itemizing is that, when added together, the total can be more than the standard deduction. The main disadvantages are that you need to understand all the rules and limitations for each itemized item, you need a complete record of each item, and it takes more time to prepare your tax return.

How much is the standard deduction?

The standard deduction amount varies by year and depends on the following factors:

• Income
• age
• Filing Status
• Whether the taxpayer is blind or not
• Whether you are married or a qualified widow

However, as of 2020, the standard deduction is as follows:

• For single or married individuals filing separately: $12,400
• For a married or qualifying widow filing jointly: $24,800
• For head of household: $18,650
• For a person living alone or as a head of household over the age of 65 or who is blind, the increase is $1,650.
• For a married person over the age of 65 or a qualifying widow or blind person, the increase is $1,300.

Who is not eligible for standard deduction?

While  90% of taxpayers  take the standard deduction instead of itemizing when filing their taxes with the IRS, some taxpayers may not be able to take advantage of the after-tax standard deduction.

Taxpayers who are not eligible for the standard deduction include:

• Someone filing “married filing separately” whose spouse items deductions
• Any person who files tax returns for a period of less than 12 months
• Any individual who was a nonresident or dual-status alien during the year (unless the individual is married to a U.S. citizen or resident alien and elects to be treated as a U.S. resident)
• an estate or trust, general trust fund, or partnership