Whats the standard deduction? An accounting expert explains how it simplifies tax filing and saves most Americans money
The hypothetical person could potentially reduce their taxable income by an additional $2,927 if they itemized. You can claim the new deduction regardless of whether you itemize your return or claim the standard deduction. Each year, the IRS adjusts the standard deduction amount that taxpayers are allowed to deduct from their AGIs. This deduction can help people lower their overall tax bills without having to itemize each deduction.
These amounts are set by the California Franchise Tax Board and are typically adjusted for inflation each year. Whether you’re retired, still working part-time, or just planning, these are worth knowing now so you can make the most of your tax situation. Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date. To qualify, you must be at least 65 and have an MAGI of under $175,000. Joint filers must both be at least 65 and have a combined MAGI of under $250,000.
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The IRS reports that nearly 90% of taxpayers choose the standard deduction. Free IRS tax return preparation – IRS-sponsored volunteer tax assistance programs offer free tax help to seniors and to low- to moderate-income people who cannot prepare their own tax returns. The standard deduction has certain situations and other rules which can affect how it is claimed and the amounts. These are for informational purposes as the eFile app claims your standard deduction for you when you eFileIT. Read this in-depth PDF publication for more information about standard deductions.
- Tax deductions allow individuals and companies to subtract certain expenses from their taxable income, which reduces their overall tax bill.
- Tax standard deduction allowed taxpayers to deduct 10% from their taxable income to reduce their tax liability instead of keeping a box filled with receipts.
- When filing your taxes, you can claim either the standard deduction or itemized deduction.
- For example, if you own a home, you may be able to deduct your mortgage interest, points, and insurance, which could be more than the standard deduction.
Does this replace the current extra standard deduction?
This decision could significantly affect how much taxpayers can save in the future, especially for those who benefit the most from a larger standard deduction. Profit and prosper with the best of Kiplinger’s advice on investing, taxes, retirement, personal finance and much more. Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail. Taxable smount of Social Security benefits – When preparing your return, be especially careful when you calculate the taxable amount of your Social Security. Use the Social Security benefits worksheet found in the Form 1040 and Form 1040-SR instructions PDF, and then double-check it before you fill out your tax return.
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction. All features, services, support, prices, offers, terms and conditions are subject to change without notice. With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.
How much is the current standard deduction worth?
If you’re a higher earner and your employer offers a nonqualified deferred compensation (NQDC) plan, you might want Standard Deduction to explore this option. NQDC plans are sometimes known as deferred compensation programs (DCPs) or elective deferral programs (EDPs). These plans allow eligible executives to defer a much larger portion of their compensation and to defer taxes on the money until the deferral is paid.
Standard deduction for 2025
The 2017 Tax Cuts and Jobs Act (TCJA) increased the standard deduction from $6,500 to $12,000 for single filers and $13,000 to $24,000 for taxpayers who are married filing jointly. Similarly, single taxpayers with a dependent, as a “head of household,” can claim a larger standard deduction of $21,900. And married taxpayers choosing to file together, known as “married filing jointly,” may claim a standard deduction of $29,200. In each case, the standard deduction usually results in lower tax bills. The primary purpose of the standard deduction is to reduce your taxable income while simplifying your federal tax return.
In the past, the $10,000 SALT deduction cap would have made taking the standard deduction—$15,750 for a single filer for the 2025 tax year—a smarter move. For a full explanation, read our article on who needs to file an income tax return. Since there is no paperwork or time-consuming step to be followed to calculate standard deduction and claim the same, this proves to be a huge benefit for individuals. Unlike any other benefit particularly related to travel, medical, etc, where bills, invoices or relevant documents need to be submitted to claim the expense amount.
It is specifically helpful for those who have already been subject to a deduction of tax from their salary, which is the TDS. Since their salary is already reduced, they can save some tax using the standard deduction process. Plus, since state tax laws can change more frequently than federal tax laws, review your state’s current standard deduction rules each year. There are extra standard deduction amounts if you or your spouse is blind and if you are 65 or older. Even taxpayers who are claimed as a dependent by another taxpayer may have a reason to file a tax return of their own; for example, so they can get a refund of withheld money.
What is a tax write-off?
- This deduction changes annually and varies depending on your filing status, with married couples filing jointly receiving larger deductions than single filers.
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- Other ineligible individuals include nonresident aliens and dual-status aliens during the tax year, with limited exceptions.
- In most cases, if you are an employee and get a W-2 with taxes withheld, making under the standard deduction means you should get the money withheld refunded.
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Can standard deduction lower tax bracket?
Keep in mind, the standard deduction doesn’t include certain deductions such as unreimbursed medical expenses or miscellaneous itemized deductions. To deduct these expenses from your taxable income, you must itemize your deductions. The standard deduction is a fixed dollar amount set by the IRS that a taxpayer can deduct from their adjusted gross income (AGI) to help lower the federal tax they owe. The IRS defines AGI as “gross income minus adjustments to income.” Gross income is made up of things like wages and other income, capital gains, and retirement distributions. Adjustments include things like alimony payments, student loan interest and contributions to a retirement account.
The eFile Tax App applies the standard deduction for your based on your entries. The tax code provides for an increased standard deduction for taxpayers who are age 65 or older, or who are legally blind. For 2025, this additional amount is $2,000 for single and head of household filers.