Paying taxes has never been easy. It seems like a growing number of us work hard and long hours just to get by. Thankfully, the IRS does provide some forms of relief from our individual tax liability.
There are two primary ways to have part of your income set aside as tax-free—standard deductions and itemized deductions. In this article, we’ll be examining the former: the standard deduction. There are many other types of deductions and tax credits available, though people who are relatively new to filing taxes should start with the standard deduction.
The standard deduction is a predefined amount of money that you are allowed to set aside as tax-free income from your total earnings for the year. The good news is that the standard deduction rates were raised significantly starting in 2018 because of the Tax Cuts & Jobs Act of 2017.
In addition to claiming the standard deduction, every taxpayer is also entitled to claim other tax-deductible expenses such as medical expenses, charitable giving, and work-related expenses.
You are only allowed to claim the standard deduction or itemize your deductions each year. Some people prefer to itemize their deductions because they believe they will receive a higher deduction compared to the standard rate by itemizing.
It’s important to note that claiming the standard deduction is more popular among taxpayers. The IRS reports that 60 percent of taxpayers claim the standard deduction as opposed to itemizing. Part of this is because the standard deduction requires a lot less time and effort to claim compared to itemizing. Which one is more appropriate for you really depends on personal circumstances. A tax professional can help assess your situation and make his or her recommendation.
The Tax Cuts & Jobs Act vastly increased the standard deduction rates in 2018. The rates for 2018 were:
For the 2019 tax year, the standard deductions will receive a minor boost yet not nearly as significant as the changes from 2017 to 2018. The rates for 2019 are:
The amount you receive from a standard deduction ultimately depends on your filing status and age. Every year, the IRS adjusts the standard deduction rates in order to keep up with inflation.
Did you know that people over the age of 65 receive an additional standard deduction? The same rule applies to people who are legally blind.
The additional deduction is calculated by adding the standard deduction based on the filing status, plus an additional amount for the special exemption. In 2018, those who were 65 and older received a total exemption of $13,600 for single filers ($12,000 plus an additional $1,600).
However, the rate for the 2019 tax season for legally blind and individuals over the age of 65 will actually get lowered to just a bonus of $1,300.
It is important to note that married couples need to be on the same page when filing a federal tax return. This rule not only applies to married couples filing jointly but also married couples filing separately.
One partner cannot decide to take the standard deduction and the other partner itemize their deductions. Married couples must do one or the other.
If dependents are also in the equation, they need to claim a separate standard deduction on their own tax return. In 2018, the standard deduction for dependents was limited to either $1,050 or the earned income plus $350 – whichever was more.
You may be wondering which deductions are most appropriate for your situation. How can you get the most tax-free income? For more questions regarding standard deductions vs. itemized deductions, contact Levy & Associates. Call 800-TAX-LEVY—or visit us online at www.www.levytaxhelp.com. We’re here to help.
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