Are you going to take the standard tax 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 that 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 your taxable income. 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 — ideally 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 2012 is as follows:
- Single ― $5,950
- Married filing separately ― $5,950
- Married filing jointly ― $11,900
- Head of household ― $8,700
The standard deduction amount tends to change from year to year, as it is adjusted for 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 as of the last day of the year.
The 2012 additional standard deduction for the elderly and blind is as follows:
- Single or head of household — $1,450
- Married (filing separately or jointly) — $1,150
Other additions to the standard deduction may also exist for loss from a Federally-declared disaster area, as well as state/local real estate taxes.
It is important to note that the amount of your standard deduction may be reduced if you are claimed as a dependant on another person’s income tax return.
Keep in mind, there are several groups of people who do not qualify to claim the standard deduction.
According to the IRS, these include the following:
- A married individual filing as married filing separately, whose spouse itemizes deductions
- An individual who was a nonresident alien or dual status alien during any part of the year (note that residents of India may be able to claim the standard deduction if they meet certain criteria. Refer to Publication 519, U.S. Tax Guide for Aliens, for more information.)
- An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period, or
- An estate or trust, common trust fund, or partnership
Understanding the standard tax deduction is very important so you can properly prepare an income tax return. You should do the math to see whether the standard deduction or itemizing deductions does a better job at lowering your tax liability.
This will make it easier for you to decide between the standard deduction and itemizing your deductions.
For more information, please see IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information).