Standard Deduction

What is a “standard deduction”? 

Standard deduction refers to a fixed dollar amount or a portion of an individual’s income that is not subject to tax, thereby reducing the taxable income of the taxpayer. The Internal Revenue Service (IRS) provides taxpayers with two options to reduce the total income to lower taxable income. Because of these deductions, taxable income and tax due are reduced. The standard deduction is one of these options given by the IRS. The other one is itemized deductions. Taxpayers must choose one of these two options, never both. 

A standard deduction allows taxpayers to reduce their taxable income even if they do not have anything to itemize. Choosing standard deduction also takes away the need to document, record, and keep all expense receipts. 

The standard deduction amount is based on different factors such as:

• Filing status
• Age
• Income
• If you are disabled or blind
• If you are claimed as a dependent on another person’s tax return
• If you are married or a qualified widow or widower

Here are the standard deduction amounts in 2021:

• For single taxpayers: $12,550
• For married taxpayers filing separately: $12,550
• For heads of households: $18,800
• For married taxpayers filing jointly: $25,100

Can everyone use the standard deduction? 

No, not all taxpayers are qualified to use the standard deduction. Certain taxpayers are not eligible to do so:

• A person who is filing as married and filing separately cannot use standard deduction if their spouse is using itemized deductions;
• A person who is filing a tax return for less than 12 months;
• A person who was a nonresident alien or dual-status alien during the year unless that person is married to a U.S. citizen or resident alien at the end of the year and who chooses to be treated as U.S. residents for tax purposes;
• And, an estate or trust, common trust fund, or partnership.

When can a taxpayer use the standard deduction? 

Selecting whether to use a standard deduction or to itemize deductions depends on the taxpayers. Many people find that standard deduction is more convenient because they do not need to monitor all their expenses throughout the year and check which of these expenses qualify as deductions. 

If you find that the standard deduction is more than your itemized deductions, you can save more money to choose the standard deduction. However, if the standard deduction is less than your itemized deductions, then you can select to itemize deductions.