The term 'Standard Deduction' is included in the Accounting edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Choose your edition here...
A Standard Deduction refers to the minimum amount of income which will not be subjected to taxes. This deduction may also be utilized to decrease the AGI adjusted gross income of the tax payer in question. Such standard deductions are only allowed to be employed in cases where the tax paying individual elects to skip the itemized deductions for figuring up income which is taxable.
Standard deductions are ultimately dependent on a number of personal factors that are particular to the filing individual. Among these are the age, filing status (married or single), any disabilities, and ability of any other taxpayer to claim them as dependent on their tax return.
Naturally, not every tax payer will elect to go with the standard deductions. Many do however. The single most compelling reason that they choose this over the itemized deduction route has to do with the fact that the majority of tax paying individuals (in the nation) will not accrue receipts for all of their potential deductible expenses as they go through a given year.
Besides this fact, a great number of individuals decide that the government’s standard deduction is reasonably generous. When they examine the comparisons between the two, they discover that the standard deductions will usually provide them a better reduction to their taxable income than the alternative method of figuring up the sum total of their allowable expenses and entering these instead. For one thing, such standard deduction amounts receive an adjustment for inflation every year. For another, if tax payers cannot supply evidence of such allowed expenses upon request to the Internal Revenue Service, then they may not choose to proceed with the itemized deductions method in any case.
The ultimate idea behind such standard deductions is to make certain that every tax payer will receive at least a portion of their income which will not be assessed by the federal income taxes. These standard deductions also apply to many different states which levy a state income tax. They generally permit individuals to claim some kind of deduction like this on the income tax return of the given state.
Each person’s level for standard deduction varies based on the filing status that they have particular to their situation. It always helps to look at a clear and real world example to understand challenging concepts like this one. Take the tax year of 2016. Those single tax payers along with married filing separately tax payers were allowed to take the standard deduction of $6,300. For those who filed as married filing jointly, they received $12,600, exactly twice the deduction of the single filers. For those who file as the head of a household (which are single individuals that can claim at-home dwelling dependents), the deduction rises to $9,300.
There are also higher standard deductions available to those taxpayers who have blindness, are at least 65 years old, or who are both. For those who are totally or partially blind, the Internal Revenue Service gives this special adjustment. Such filers require an eye doctor-certified statement to reinforce their claim. A great number of the various states throughout the country also give these kinds of adjustments based on blindness or old age.
Though there is little doubt that it proves to be significantly simpler to just take the standard deduction than it is to go through the trouble and time to itemize specific deductions, this could cost filers tax-reducing deduction amounts. Many individuals who gave large amounts of money to churches or charities, encountered major medical costs, paid property taxes or interest on mortgage, or who suffered from uninsured losses because of natural disasters or theft will find itemizing pays off. This is why the IRS suggests individuals spend some time to work their tax deductions both ways to learn which one will provide a larger deduction. For people who utilize a good tax program like Turbo Tax, it will do it on the behalf of the filer.