Taxpayers face two choices when filing their tax return. Choice one is to go with a “Standard Deduction” and choice two, is to go with “Itemized Deductions”. Each taxpayer with the exception of someone who can be claimed as a dependent on another taxpayer’s tax return, is entitled to a Standard Deduction.
A Standard Deduction varies depending on your “Filing Status.” There are five filing statuses available for your tax return. Each of these filing statuses allows a different Standard Deduction, depending on which you are allowed to claim. For the tax year ended 2015, they are as follows:
Married filing jointly – $12,600
Head of household – $9250
Single (unmarried) – $6300
Qualifying widow(er) – $12,600
Married filing separately – $6300
Additionally, certain taxpayers may increase these amounts under specific conditions. 1) if the taxpayer is sixty-five years old or older 2) if the taxpayers blind. For the tax year ended 2015 the additional amount is $1550 for unmarried filers, and $1250 for those who are married, or a surviving spouse.
If a taxpayer is sixty-six years old, and blind, their standard deduction would be $9400 ($6300 + $1550 + $1550).
However in many cases the taxpayer pays less-taxes if they choose to itemize. Itemized deductions generally include:
– interest payments on a home
– taxes paid
– medical costs
– charitable donations
– expenses incurred in order to invest
– casualty and theft losses
– business expenses incurred but unreimbursed by the employer
– legal fees paid to earn income
– gambling losses
– estate taxes on income in respect of decedents
A taxpayer cannot claim both standardized deductions, and itemized deductions. This rule also applies to additional standardized deductions for blindness or age.
As a general rule the taxpayer should claim the standard deduction when it is greater than the total amount of itemized deductions available to him or her. In some instances, for high-income earners, it may make sense to itemize even if the standard deduction is higher. The reason is because that certain itemized deductions can still offset income subject to AMT (Alternative Minimum Tax), while standard deductions cannot.