Q: What is the standard deduction?
Bill, Baltimore MD
A: Taxpayers have a choice of itemizing their special deductions (mortgage interest, charitable contributions, etc.) or taking the "standard deduction." They can take whichever one is bigger for them. About 70% of filers take the standard deduction, so understanding how it works and what its limits are is important...
eFor more information on the standard deduction, please see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
The standard deduction differs based on filing status, and is adjusted for inflation every year. In 2008, the standard deduction amounts are:
- Single and Married Filing Separately: $5450
- Married Filing Jointly and Qualifying Widow(er): $10,900
- Heads of Households: $8000
Out of Luck
The standard deduction is not available to several categories of taxpayers. These taxpayers have no choice but to itemize their deductions for catastrophic medical expenses, state and local taxes paid, mortgage and investment interest, charitable contributions, casualty losses, and miscellaneous expenses:
- A "Married Filing Separately" taxpayer whose spouse itemizes their deductions
- A tax return for a short tax year because of a change in accounting period
- A non-resident or a dual-status alien
Old and Blind
Those who are 65 and older or blind can take an "additional standard deduction amount." This, too, increases with inflation. For 2008, each incident of being blind or over age 65 adds $1050 to the standard deduction amount ($1350 if single).
The standard deduction for dependents has a special calculation. It is the greater of:
- $900, or
- $300 plus the dependent's earned income (but not more than $5450)
This is to help prevent unearned income from being sheltered under a dependent's name.
If you would do better to itemize, you may want to take the standard deduction anyway. This is usually only true if the main reason you are itemizing is to deduct state income tax. Most states disallow this deduction on their return, so both federal and state tax liabilities should be examined when making this decision.
The standard deduction is disallowed for AMT taxpayers, so itemizing often makes sense in these cases.
If you took the standard deduction and later change your mind and want to itemize your deductions, you can do so by filing an amended return.