Are you going to take the standard deduction? Or will you claim itemized deductions? To better answer these questions, you may need to learn more about the standard deduction and the benefits it offers. One thing is for sure: you need to take full advantage of as many tax deductions as possible. This is one of the best ways to lower your income tax liability.
The standard deduction is a “set” dollar amount, based on your filing status, which reduces the amount of income that is subject to tax. It is important to note that you cannot take the standard deduction if you are itemizing your deductions. You have to choose one method or the other; preferably the one that will do you the most good.
As noted above, the standard tax deduction is based on your filing status including: single, married filing separately, married filing jointly, or head of household.
The standard deduction for 2010 is as follows (based on your filing status):
Married filing jointly ― $11,400
Single ― $5,700
Married filing separately ― $5,700
Head of household ― $8,400
The standard deduction amount can change from year to year, and is based mainly on inflation.
Did you know that there is an additional standard tax deduction for people over the age of 65 and/or those who are blind? The deduction for the blind is allowed if you or your spouse is medically claimed to be totally or partially blind on the last day of the year.
Other additions to the standard tax deductions are for: loss from a federally declared disaster, and local and state real estate taxes (up to $1,000 for joint filers), among others.
The amount of your standard deduction can be reduced if you are claimed as a dependant on another person’s return. In most cases, the amount of the deduction is the greater of your earned income for the year plus $300 or $950.
There are several groups of people who do not qualify for the standard deduction. They include: a married individual with “married filing separately” status and a spouse who is itemizing deductions, a person who is classified as a “nonresident alien,” and a person who has changed his accounting cycle and is not filing for a full 12-month period.
Understanding the standard tax deduction is very important. This makes it easier for you to decide between the standard deduction and itemizing. Is the standard deduction the best choice for you?