In 2020, middle income earners in the US paid an average of $15,748 to the federal government—but the amount an individual pays in federal taxes varies greatly depending on factors like tax bracket, income, and filing status. Deductions are an important part of keeping that bill as low as possible. The most common route is to take the standard deduction, which is a set amount that any taxpayer can use to decrease their taxable income.
What is the standard deduction?
When taxpayers file their federal taxes, they may use certain deductions to lower their taxable income and, as a result, the amount they owe in federal taxes. The IRS offers two choices:
- Using a set amount to reduce taxes, known as a standard deduction, or
- Using a line-item list of eligible tax deductions, known as an itemized deduction.
Taxpayers who opt to take a standard deduction don’t have to provide any kind of documentation when filing their taxes. It’s an automatic deduction based on filing status and dependents. Each year, the IRS sets a new standard deduction amount. It usually increases slightly to account for inflation.
How much is the standard deduction?
Most taxpayers qualify for the standard deduction if they prefer to use it over itemized deductions. The amount that can be claimed depends on the person’s filing status. The following chart shows the standard deduction amount for 2020 and 2021 by tax filing status.
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How the standard deduction works
Taxpayers use the standard deduction amount for the tax year they’re filing for, not the current calendar year. For instance, a couple using the standard deduction for married filing jointly on their taxes due in April 2022 would use the 2021 deduction of $25,100 because they’re filing taxes for the previous year’s income.
These standard deduction amounts only apply to federal taxes. Each state has its own way of handling state taxes. Some states don’t charge any income tax at all, while others allow the choice between a standard and itemized deduction. However, the state deductions are usually lower than the federal deduction amounts.
What is an itemized deduction?
Some taxpayers benefit more by itemizing their tax deductions. This means that instead of claiming the standard deduction, they use individual tax breaks to lower their taxable income. Each taxpayer will have a different deduction amount since everyone will have different eligible expenses to deduct.
Here are some common itemized deductions allowed by the IRS:
- Mortgage interest (up to a limit)
- Local and state income taxes (up to a limit)
- Local and state real estate and personal property taxes
- Medical and dental expenses that exceed 7.5% of the taxpayer's adjusted gross income
- Charitable contributions to eligible organizations
- Losses from a federally declared disaster
Taxpayers usually opt to take itemized deductions when the total exceeds their standard deduction amount. However, one of the drawbacks to itemizing is that taxpayers do need to keep records of any tax deductible expense. In case of an IRS audit, they’ll need to prove that the expenses were legitimate and actually paid.
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