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What is the standard deduction?How much is the standard deduction?How the standard deduction worksWhat is an itemized deduction?Standard deduction vs. itemizedFAQs about the standard deductionThe bottom line
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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: 

  1. Using a set amount to reduce taxes, known as a standard deduction, or 
  2. 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.

Filing status Tax year 2020 Tax year 2021
Single $12,400 $12,550
Married, filing separately $12,400 $12,550
Married, filing jointly $24,800 $25,100
Head of household $18,650 $18,880

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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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Disclosures

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see
Titan’s Legal Page for additional important information.

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Standard deduction vs. itemized

Choosing between the standard deduction and itemized deductions is a simple matter of math. When a taxpayer’s itemized deductions exceed the standard deduction amount, it makes sense to itemize. But if a taxpayer doesn’t have a lot of expenses to deduct, it usually makes sense to take the larger standard deduction.

It’s easy to figure this out no matter how taxpayers file, either with DIY tax software or a tax professional. A standard deduction calculator is usually built into any tax software and compares both scenarios to determine which deduction is better. That means a taxpayer usually has to input all of their potential itemized deductions into the software (or in the documents provided to a tax pro), even if they don’t end up itemizing their deductions.

For most people, the big-ticket deductions are related to their homes in the form of mortgage interest and real estate property taxes. For a quick idea of whether itemizing is worth it, a taxpayer could quickly log into their mortgage account and see how much they paid in mortgage interest and property taxes for the year. If those numbers are close to the standard deduction limit, it might be worth calculating all eligible expenses to find the best option. 

FAQs about the standard deduction

Who isn’t eligible for the standard deduction?

Not everyone is eligible for the standard deduction. Anyone who falls into one or more of these categories does not qualify:

  • A married couple filing separately—when one spouse itemizes, the other may not claim the standard deduction
  • A nonresident alien or dual status alien
  • A taxpayer whose return is for less than 12 months because of changes to their annual accounting period
  • A partnership, estate, trust, or common trust fund

Who qualifies for an additional standard deduction?

Additional standard deductions are available to the following taxpayers:

  • Those who are 65 years or older by the end of the tax year
  • Those who are legally blind

Taxpayers who fall into both categories may claim two additional deductions.

What is an increased standard deduction?

Taxpayers with a net qualified disaster loss can opt to increase their standard deduction by the amount of that loss.

What is the standard deduction for dependents?

The standard deduction is limited if a taxpayer is claimed as a dependent by another taxpayer. The deduction amount is either $1,100 or their earned income, plus $350 (whichever is greater). However, it cannot exceed the standard deduction amount. This scenario often comes into play with older children, like teens in high school or college, who still depend on their parents but earn income.

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The bottom line

Taxpayers looking for the lowest federal tax bill possible can compare the standard deduction to their potential itemized deductions each year. There’s no sense in leaving money on the table, even if it takes a little extra effort to add up the itemized expenses.

If you’re ready to start growing your capital, Titan is ready for you. Our team of exceptional investment analysts manage hundreds of millions of dollars, investing our clients in actively-managed, long-term strategies with an eye on massive growth potential. Through our award-winning app, you’ll ride shotgun with some of the smartest investment minds in the business. Sign-up takes minutes: get started today.
Disclosures

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see
Titan’s Legal Page for additional important information.

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