One of the most common mistakes you can make when filing taxes is not claiming the standard deduction.
If you’re not sure what a standard deduction is, here’s a good explanation: The standard deduction is a set dollar amount of money you can deduct from your taxable income for the year. This takes the place of itemizing deductions individually.
In general, tax deductions reduce your taxable income for the year, which can lower the amount of taxes you owe or increase the size of your refund. So, it’s important that you claim the standard deduction if you are not going to be itemizing.
To help you decide if you should claim a standard deduction, read on.
How does the standard deduction work?
The IRS defines the standard deduction as a specific dollar amount that reduces the amount of income on which you’re taxed. There’s a basic standard deduction that applies, based on your filing status, along with additional standard deduction allowances based on age and whether you’re blind. The standard deduction amounts are set by the IRS and they can be adjusted each year, based on inflation and/or changes to the federal tax code.
Not everyone is eligible for the standard deduction. You can’t claim it if:
- You itemize deductions on your tax return.
- You’re married and file separately, with your spouse itemizing deductions.
- You’re a nonresident alien or dual status alien.
- Your tax filing covers a period of less than 12 months.
- You’re filing taxes as an estate, trust or partnership.
Other than those restrictions, however, anyone can claim this tax break. It’s essentially free money you might otherwise leave on the table.
Taking the standard deduction means you can’t itemize
While the standard deduction is easy to claim, this means you can’t itemize deductions on your tax return.
Itemizing tax deductions means that instead of deducting one lump sum amount from your taxable income, you list deductible expenses on your return individually using Schedule A. If you have substantial-deductible expenses, itemizing may yield a larger tax benefit than the standard deduction.
You can’t claim any other deductions, either
There are certain things you can deduct on both your personal and business taxes and in some cases, you may have to itemize to claim those deductions. For example, you’ll need to itemize to deduct mortgage interest paid for the year, charitable donations and qualified medical expenses from your personal taxes. Taking the standard deduction means you wouldn’t be able to deduct those expenses from your taxable income individually.
Note: The standard deduction applies to personal income tax only. There’s no standard business deduction if you own a business. If you run a business, you may need to claim any business expenses on Schedule C of your personal return.
What’s the 2019/2020 standard deduction?
The standard deduction amount can fluctuate from year to year and the amount you can deduct is based on your filing status. These charts illustrate how much you can claim for the 2019 and 2020 standard deduction.
|Filing Status||Standard Deduction 2019|
|Head of Household||$18,350|
|Married Filing Separately||$12,200|
|Married Filing Jointly||$24,400|
If you’re age 65 or older, you can bump your standard deduction amount by $1,650 if you file single or head of household. If you’re married and file a joint return and you or your spouse is 65 or older, you can increase your standard deduction amount by $1,300. If both you and your spouse are 65 or older, you can increase your 2019 standard deduction by $2,600. Those same increase amounts apply for taking the standard deduction in 2019 if you’re legally blind.
It’s also worth pointing out that your standard deduction amount is different if you’re eligible to be claimed as a dependent on someone else’s taxes. For example, if you’re a college student and you don’t provide more than half of your own support, your parents can still claim you as a dependent on their taxes. For 2019, your standard deduction would be limited to the greater of $1,100 or your earned income plus $350.
Now here’s a look at what you can expect when taking the standard deduction for the 2020 tax year.
|Filing Status||Standard Deduction 2019|
|Head of Household||$18,650|
|Married Filing Separately||$12,400|
|Married Filing Jointly||$24,800|
You’ll see that there are slight increases across the board for the standard deduction. That means you’ll get a little bit more of a tax break when you file next year.
The amount of the additional standard deduction you can take if you’re 65 or older or legally blind remains the same for 2020. Keep in mind that to qualify as blind for tax purposes, the IRS requires a certified letter from an eye doctor or optometrist stating that you have non-correctable 20/200 vision in your strongest eye or that your overall field of vision is restricted to 20 degrees or less.
So, should I take the standard deduction?
Whether it makes more sense to itemize or take the standard deduction depends on a number of factors, including your income, filing status and what type of expenses you have. Looking at both the pros and cons can help make your decision easier.
Pros of claiming the standard deduction:
- Simplifies tax filing, since you don’t have to spend time organizing receipts or adding up expenses.
- The amount of your standard deduction may be higher than what you could deduct by itemizing.
- Older people and the blind may be eligible for a larger standard deduction.
Cons of claiming the standard deduction:
- Some filers could get more of a tax break by itemizing.
- There are some restrictions on who can claim it (i.e. married filing separately when one spouse itemizes).
- Your standard deduction may be reduced if someone else can claim you as a dependent.
If you’re confused about which way to go, it may help to discuss this with a tax professional. But if you’re comfortable running the numbers on your own, a simple way to determine whether you should itemize is by adding up your deductible expenses. The IRS also has a helpful online tool that can help you determine your standard deduction amount.
Bottom line: You should consider claiming the standard deduction if you have a simple and straightforward tax filing and you want to save time and headaches. The standard deduction doesn’t require a lot of additional paperwork to file and it’s easy to claim if you’re using an online tax software program. And, claiming the maximum standard deduction for your filing status is an easy way to trim money off your taxable income.
Final pro tip: If you’re claiming the standard deduction and getting a tax refund, think carefully about what you want to do with it. Paying down student loans or other debts might be one option, but also consider putting some or all of your refund into a savings account to grow your cash cushion.