The standard deduction is a set dollar amount taken from your taxable income which then reduces your total tax burden. (For returns filed in 2015).
• Describes the standard deduction and how it is applied.
• Lists the amounts you are allowed to claim based on your filing status.
• Briefly discusses the pros and cons of itemizing your deductions instead.
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The standard deduction is very simple to apply, if you choose to take it. Whether you file a paper return or e-file, the calculation is very straightforward.
In a nutshell, you take your total taxable income, after all credits and exemptions have been calculated, and you reduce it by the amount of the standard deduction. This amount varies, depending on your filing status and whether or not you are over 65.
Commonly, those filing a simple return such as a 1040EZ or even a more complicated forms but choose not to itemize will (will obviously) take the standard deduction.
Note: you may not take the standard deduction if you are married but filing separately, and your spouse is itemizing his/her deductions. This is one of the forms of marriage tax penalties which unfortunately Congress has yet to resolve.
Note: if you are over 65 years of age, born on or after January 2nd, 1950, and/or if your spouse is 65 or older, or if you and/or your spouse are blind, your standard deduction may be significantly higher. Consult the following IRS document for more information:
As I wrote earlier, those filing very simple returns really have no deductions to claim, so it only makes sense to take the standard deduction.
There is, however, a gray area where the decision is somewhat murkier, and some calculations are required to help you figure out whether it makes more financial sense to itemize your deductions, because the total amount saved is higher than the standard deduction.
Most new homeowners with high mortgage interest payments should probably itemize, as should those with business and/or investment losses that allow for a higher deduction (small consolation, of course).
Those with extremely large medical bills not covered by health insurance in 2017 should also consider deducting those separately. See our complete guide to all tax deductions for more in-depth information.
The easiest way to figure out whether you should take the standard deduction, or itemize, is to take the TurboTax e-filing interview.
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The standard deduction, your personal exemption, as well as additional basic tax filing information are all contained in the rather dull
IRS Publication 501. You do not need additional forms when filing a paper return, all the fields for calculating your deduction are on your 1040 form (whichever one you choose to file).