Standard Deduction - Explained
What is a Standard Deduction?
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Table of ContentsWhat is a Standard Deduction?How Does the Standard Deduction Work?Itemizing vs. Standard DeductionAcademic Research on Standard Deduction
What is a Standard Deduction?
Standard deduction refers to the amount of income that can be subtracted before the income tax is applied. The Internal Revenue Service (IRS) standard deduction is the portion is in an individual's income that is not taxable. This is a deduction or tax credit under the United States tax law in which non-itemizers are permitted to remove from their income before income tax is applied. Standard reduction lessens an individuals tax bill. People who do not itemize their deductions are the ones permitted to take the standard deduction. The amount of standard income is dependent on the age and status of the collector.
How Does the Standard Deduction Work?
An income tax is levied by the government on the income generated by individuals, this serve as a source of revenue for the government. Government allows a portion of an individuals income to be deducted and this is to reduce the tax that will be paid by such individual. Taxpayers can choose either itemized deductions or the standard deduction, and not both. Taxpayers choose the one that will lessen their payable tax. The itemized deduction allows a taxpayer to enlist all your tax-deductible expenses for the year. If your expenses for the year is more than the subtraction you would get from Standard deduction, you can opt for itemized deduction, if not standard deduction remains the option. This segment explained standard deductions on 2018 taxes that were filed in April 2019. Standard deductions vary from one individual to another depending on the status of the individual. For example, the standard deduction for a single taxpayer varies from that of married taxpayers filing jointly so also for widows and widowers. The federal income tax system however offers higher rates of standards deductions for people above age 65 and those who are blind. While a single person earning a total income of $80,000 enjoys a $12,000 reduction, a married couple filing jointly can enjoy up to $24,000 standard reduction on their gross income while heads of households enjoy $18,000 standard reduction. The federal income tax system offer standard reductions to help individuals reduce taxes on their incomes. However, not everyone is entitled to standard reduction, this is because there are certain criteria that must be met before any individual can have access to standard reduction. Individuals who are not residents of a state at any time of the year cannot claim standard deductions. For a clearer picture, if you are an alien to the state at a time of the year, you are disqualified from standard reduction. Also, individuals under itemized deductions cannot claim standard deductions. Standard deduction can increase for individuals who reside in federally declared disaster area.
Itemizing vs. Standard Deduction
Using itemized deduction mean you will have to list your medical expenses, gambling losses, property tax and other tax-deductible costs or expenses for the year. Because it is difficult for many people to keep track of their annual expenses, they opt for standard deduction instead of itemized deductions. Also, standard deduction tend to be higher than the total amount of al tax-deductible costs which is another reason taxpayers choose it. So, aside from saving taxpayers the stress of keeping track of all their expenses, standard deduction also offer greater value than itemized deduction.