As tax season approaches, it’s important to understand the standard deduction and how it affects your taxes. The standard deduction is a set dollar amount that reduces your taxable income and lowers the amount of taxes you owe.
For the 2021 tax year, the standard deduction for individual filers is $12,550 and $25,100 for married couples filing jointly. This means that if you choose to take the standard deduction, you can reduce your taxable income by these amounts.
Who Qualifies for the Standard Deduction?
Nearly two-thirds of taxpayers choose to take the standard deduction rather than itemizing their deductions. This is because the standard deduction is generally more beneficial for those with lower incomes or those without significant deductions.
Individuals who are claimed as dependents on someone else’s tax return may also be eligible for the standard deduction. However, the amount is usually smaller and depends on the individual’s earned income.
How Does the Standard Deduction Work?
When you file your taxes, you have the option to take either the standard deduction or itemize your deductions. Itemizing means you list out all of your deductible expenses (such as mortgage interest, charitable donations, and state and local taxes) and subtract them from your taxable income instead of taking the standard deduction.
If your itemized deductions are greater than the standard deduction, then it may be more beneficial for you to itemize. However, if your itemized deductions are less than the standard deduction, it’s typically better to take the standard deduction.
It’s important to note that the standard deduction is not the same thing as a personal exemption. Personal exemptions were eliminated with the passage of the Tax Cuts and Jobs Act of 2017, which instead increased the standard deduction to provide relief for taxpayers.
In summary, the standard deduction is a set amount that reduces your taxable income and lowers the amount of taxes you owe. Most taxpayers choose to take the standard deduction as it’s generally more beneficial than itemizing their deductions. Knowing whether or not you qualify for the standard deduction and how it works can help you maximize your tax refund or minimize your tax liability.
