What is a Standard Deduction, and How It Works?

Have you ever wondered what is the standard deduction used for? Or maybe you don’t know the relevant deduction amounts for 2024? Paying taxes can be overwhelming, so we’re here to help. On a basic level, standard deductions are designed to reduce taxable income, but you must know all the requirements before you deal with this type of tax break.

So, what is a standard deduction, and exactly how much can you deduct from your taxable income? Keep reading to learn about this approach to taxes, what it entails, its restrictions, and how it compares to the itemized type.

What Does Standard Deduction Mean?

The standard deduction is an amount established by the Internal Revenue Service (IRS) each year that can be deducted from your taxable income (which is most of what you earn during the year). As a result, your overall tax bill is reduced. The reason this amount is subject to changes is that it is regularly adjusted for inflation by the IRS.

As opposed to itemized deductions, which can be different for each individual taxpayer and require listing in a separate tax form, the standard deduction is, well, standardized. The exact amount is determined according to the individual’s age, filing status, and possible dependency on another person’s tax return.

Standard Deduction Amounts for 2024

Now that you know the standard deduction definition, let’s discover how much is the standard deduction you can get. Similarly to the previous years, the 2024 numbers have been adjusted for inflation.

If you are single or married but filing separately, the standard amount for 2024 is $14,600, which is an increase from 2023’s $13,850. Married couples filing jointly can deduct $29,200, while heads of household deduct $21,900. In 2023, the standard deduction for married couples filing jointly was $27,700 and $20,800 for heads of household.

The only exceptions to these rules are people over 65 and those who are totally or partially blind. According to the IRS, taxpayers in such categories can claim an additional $1,950 per person.

Note that to claim a higher deduction due to advanced age, you need to be at least 65 at the end of the tax year. As for being partially blind, the IRS refers to individuals who have a field of vision of 20 degrees or less or have corrected vision no better than 20/200.

Also, if you are filing as a dependent, there is an additional rule to consider. Your standard deduction cannot be higher than either your earned income plus $450 or the IRS-set amount of $1,300.

What Are the Standard Deduction Restrictions?

However, there are some restrictions on standard deduction, meaning you’ll have to check your applicability as your taxpayer status changes. Here are the scenarios when you can’t apply for the reduction:

• Non-resident or dual status: If you have been a dual-status or non-resident alien during the tax year. You can refer to the IRS Publication 519 for aliens to see if this applies to you, as there are some exceptions.
• Filing status: If you are married and filing separately, but your spouse goes for an itemized deduction instead of a standard one.
• Short tax return: This restriction applies if you file a tax return for fewer than 12 months due to the accounting period change.
• Entities: Trust funds, partnerships, and estates cannot choose the standard deduction option.

If you belong to any of the categories listed above, you should use itemized deductions. As it is more complicated, consider consulting a tax specialist.

Standard Tax Deduction vs. Itemized Deductions

Now that we’ve established what is a standard deduction for taxes, let’s see how it compares to the itemized one.

When using itemized deductions, you need to account for each eligible deduction separately. For this, you have to use a Schedule A form. In this form, you can list all expenses that meet the IRS requirements. Those include but are not limited to, charity donations, medical expenses, mortgage interest, student loan interest, etc. You should be careful not to list inapplicable expense categories, as this will inevitably trigger an audit.

On the other hand, the standard deduction is simple. That is, you don’t need to learn how to calculate a standard deduction, as it is a fixed amount determined by your taxpayer status, which you can easily check.

When It’s Better to Claim the Standard Deduction

If you are confused about whether to go for standard or itemized deductions, the number one rule is that you should select the option that will give you the highest profit. So, if your standard deduction amount is higher than your itemized one, there is nothing to ponder, and you should choose the standard option.

Another point in favor of the standard deduction is its simplicity. Calculating itemized deductions is fairly complex, and you’ll need to have a lot of financial documents on hand. If you feel like you won’t be able to handle all the data correctly, it’s better to pick the standard option. And if you haven’t been noting all your annual expenses, there’s no choice at all. Also, the itemized deduction only applies if you’re eligible for the standard one, so you better check your eligibility before filing any forms.

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Standard deduction is very straightforward, as it differs only depending on your age and filing status. It is a fixed amount, so all you have to do is find your category and subtract the sum from your taxable income. The majority of US residents choose this option, as it’s not only easier but often allows them to save more.