When you go to file your taxes each year, you get to decide about whether you want to take the standard deduction or opt for itemized deductions. When you choose the standard deduction, you get to deduct from your taxable income a specific amount that the Internal Revenue Service updates each year. How much you get depends on factors such as whether you're married or single, how old you are, whether you are blind and if you're a dependent on someone's return.
Learn more about how the standard deduction works, how much it is for 2020 and when it makes sense to file your taxes with this option.
Defining the Standard Deduction
When you pay your taxes, you pay federal income tax alongside Medicare and Social Security taxes. The standard deduction is an amount the IRS lets you deduct outright from your adjusted gross income to help you reduce your taxable income and pay less in federal income taxes. However, it doesn't have an impact on the Medicare and Social Security taxes you pay. You can contrast the standard deduction and other types of deductions with tax credits, which instead reduce your federal tax liability dollar for dollar rather than just reduce the income deemed as taxable that year.
As an alternative to taking the standard deduction, the IRS will let you do the work of itemizing all your deductions using the Schedule A form. That option requires looking up and calculating individual expenses that the IRS allows you to deduct and then using that amount in place of the standard deduction. Examples of itemized expenses can include mortgage interest, charitable contributions, theft losses, medical expenses and various types of taxes and interest.
Who Can Take It?
Whether you're an employee, retiree or independent contractor, there's a good chance you can qualify to take the standard deduction. In many cases, it's your decision whether you'd benefit more financially from using this easy option versus itemizing your deductions. For example, if you'd had significant medical expenses, property taxes and mortgage interest for the year, those combined could outweigh the standard deduction depending on your age and filing status. However, since the standard deduction is quite large, many taxpayers find they come out ahead without dealing with itemized deductions.
On the other hand, the IRS does have some restrictions for taxpayers in specific situations where they have no option to take the standard deduction. For example, if you and your spouse file your taxes separately, both of you need to itemize if one of you does so. Estates, partnerships and trusts can't take the standard deduction, and neither can many people who are nonresident aliens. The IRS also doesn't allow a standard deduction for taxpayers who changed their accounting period so that the return covers less than 12 months.
2020 Standard Deduction Amounts
The IRS updates the standard deduction with a small increase each year. The specific amounts depend on the filing status you choose as well as factors such as age, blindness and dependency status. The IRS allows a larger deduction for the elderly and legally blind and a smaller deduction for people who can be claimed as dependents on somebody else's tax return.
For 2020, the standard deduction amounts are $12,400 for those filing as single or married filing separately, $24,800 for those married filing jointly (including those who are surviving spouses) and $18,650 for heads of household. Somebody who's at least 65 or who is blind will get an extra $1,300 on top of those rates, but someone unmarried who's blind or aged would get an extra $1,650. This means that a single person who's 70 would get a total standard deduction of $14,050, while a single blind person who is 50 would get $13,700.
Someone who is a dependent, however, has a bit more complex answer to their standard deduction amount. The IRS notes they need to take their earned income and add $350, and then compare that amount to $1,100. They get whichever is bigger, but they can't get more than the standard deduction for their filing status in any case. The IRS offers an online tool that can help you determine your standard deduction in more complex tax situations.
Benefits of the Standard Deduction
When considering whether to take the standard deduction versus itemizing deductions, going with the former can save you a lot of time and hassle, whether you do your own taxes or pay someone else to do it. Most taxpayers can qualify for the option, so it's widely accessible. Further, the generous standard deduction amounts may work out in your favor and save you more on federal income taxes than itemizing would.
With the standard deduction, you also don't need to worry about looking up receipts and other documentation for itemized expenses. However, it's important to note that the Coronavirus Aid, Relief and Economic Security Act allows a small deduction on cash gifts to charity without itemizing this tax year.
Disadvantages of the Standard Deduction
The disadvantages of the standard deduction mainly deal with eligibility for certain taxpayers as well the potential of getting a lower deduction if you have considerable expenses to itemize. For example, even if you're filing separately from your spouse and would qualify to take the standard deduction otherwise, you can't do so if your spouse decides to itemize. You'd likely also have to deal with a lower standard deduction as a dependent.
If you think your itemized expenses for the year could add up to more than your potential standard deduction, consider filling out your Schedule A just to check. That way, you don't miss out on the tax savings available to you.
Taking the Standard Deduction
If you've decided to move forward with taking the standard deduction, know that it's a relatively simple process. You enter the standard deduction amount for your tax filing situation on line 9 of your Form 1040 tax return. When you take the standard deduction, you don't have to worry about filing a Schedule A. However, if you tried to figure out your itemized deductions anyway, you'll notice that line 17 of Schedule A shows the itemized deduction amount you'd qualify for as comparison, and line 18 makes you double-check whether you'd like to proceed anyway.
Since taking the standard deduction is simple, this can make it easier for you to file your own taxes if you'd like. In fact, many online tax filing programs even help you decide whether the standard deduction makes sense for your tax situation based on the data you input, and some even start with the standard deduction as default since it often makes sense for many taxpayers. This feature gets rid of a lot of the guesswork to ensure you get the higher deduction available.
Read More: Do You Need Proof of Tax Deductions?
Now that you know all about the standard deduction and 2020 amounts, you have a better understanding of what to expect this tax season. At the same time, consider checking out the many other tax deductions discussed on the IRS website for individuals and businesses.
- IRS: Topic No. 501 Should I Itemize?
- IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2020
- Forbes: IRS Releases 2020 Tax Rate Tables, Standard Deduction Amounts and More
- IRS: How Much Is My Standard Deduction?
- U.S. News & World Report: The Pros and Cons of Standard vs. Itemized Tax Deductions
- Investopedia: Itemized Deduction
- IRS: Schedule A
- Fidelity Charitable: What the Cares Act Means for Your Charitable Giving
- IRS: Topic No. 551 Standard Deduction
- IRS: Form 1040
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Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.