Like a tax credit, a tax deduction is a type of tax break. It reduces the amount of money you owe Uncle Sam. Tax deductions lower your tax burden by lowering your taxable income and you can either claim the standard deduction or itemize your deductions when you file. For tax year 2018 (what you file in early 2019) the standard deduction is $12,000 for single filers and $24,000 for joint filers. This is a big increase from the previous year because of the changes from the Republican tax plan that President Trump signed in late 2017. If you’re unfamiliar with the standard deduction, continue reading.
Understanding the Standard Deduction
Whether you’re a business owner or an employee, you probably want to keep your income tax bill as low as possible. That’s where tools like deductions come in. Regardless of where you stand on the financial front, there are a wide range of expenses that you may be able to deduct from your taxes.
Many costs and contributions are deductible, including charitable gifts, mortgage interest, student loan interest, some business-related costs and medical expenses. Deducting these individual expenses on your tax return is known as itemizing deductions. In order to claim these deductions, you’ll need to have some kind of evidence indicating that you deserve to have a portion of your income exempt from taxation.
Not everyone will itemize deductions, however. That’s because there’s also a standard deduction, which is simply a set amount of money that individuals can automatically subtract from their adjusted gross income. If your standard deduction is greater than the sum of the itemized deductions you qualify for, then you just take the standard deduction instead. The size of your standard deduction depends on a few factors: your age, your income and your filing status.
How Much Is My Standard Deduction?
The standard deduction is tied to inflation, so the amounts change a bit each year. For the 2018 tax year, which we file in early 2019, the federal standard deduction for single filers and married folks filing separately is $12,000. It’s $24,000 if you’re a surviving spouse or you’re married and you’re filing jointly. If you’re the head of your household, it’s $18,000.
Individuals who are at least partially blind or at least 65 years old get a larger standard deduction. If you’re single, you’re married and filing separately or you’re the head of household, it’s $1,600. If you’re married and filing jointly or you qualify as a widow(er), it’s worth $1,300.
|Standard Deductions by Age: 2018 Tax Year|
|If your filing status was…||And at the end of the year you were…||Your standard deduction is…|
|Single or married filing separately||under 65 |
65 or older
|Married filing jointly||under 65 (both spouses) |
65 or older (one spouse)
65 or older (both spouses)
|Head of household||under 65 |
65 or older
|Qualifying widow(er)||under 65 |
65 or older
Is someone else claiming you as a dependent? If so, your standard deduction amount can’t exceed the greater of either a) $1,050 or b) your total earned income plus $350. If you live in a state that requires you to pay income taxes, there may be a state-based standard deduction that you can claim on your state tax return.
There is an IRS tool that you can use to calculate your own standard deduction. Within about five minutes, you’ll know exactly how much you can deduct from your income.
It’s important to note, however, that not everyone can use the standard deduction. Unfortunately, if you fall into any of the following categories, you’ll likely have no choice but to itemize your deductions:
- You file a tax return for a period of less than 12 months because you’re changing your yearly accounting period
- You’ve been a non-resident alien at any point during the tax year
- You’re married, filing separately and your spouse is itemizing his or her deductions
Estates, partnerships, common trust funds and trusts also aren’t eligible for the standard deduction.
Standard Deduction vs. Itemized Deduction
The difference between the standard deduction and an itemized deduction is simple. The former is a specific or standard number determined solely by your age and filing status. But the latter requires you to manually itemize your deductions. That means you would have to sit down, review your financial documents and add up everything. And unlike previous years, for the 2018 tax year there is no limit on the amount of itemized deductions that you can take.
Ultimately, you’ll have to decide how you want to claim your deductions. That’s because the rule is that you can’t use the standard deduction and itemize your deductions within the same tax year.
Deciding How to Claim Your Deductions
If you aren’t sure whether to itemize deductions or take the standard deduction, it’s a good idea to run the numbers. Whatever gives you the largest deduction is the one you should probably go for.
Taking the standard deduction is certainly easier, especially if you haven’t been tracking your expenses over the course of the year. Most Americans choose to go that route, and you can claim the standard deduction even if there isn’t a single expense that you’d be able to deduct otherwise. The standard deduction has also become even more attractive since the tax reform bill dramatically increased the size of it while removing or reducing some itemized deductions.
Of course, if you want to itemize but need help doing so, you may want to talk to a financial advisor who specializes in taxes. Our financial advisor matching tool can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down thousands of advisors to three fiduciaries in your area who meet your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.
Deductions reduce the amount of money you’re have to pay by the April 15th deadline. The government sets the standard deduction and dictates its amount. All tax filers can claim this deduction unless they choose to itemize their deductions. For the 2018 tax year, the standard deduction is $12,000 for single filers and $24,000 for joint filers. Filers who have a head of household status get a deduction of $18,000. The deduction amount also increases slightly each year to keep up with inflation.
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