1. Standard Deduction, Filing Status, Exemptions

2. Three Separate Topics? Why look at these topics together? They are related: The amount of the standard deduction depends on the filing status. The amount of the standard deduction depends on the filing status.  The criteria for the Head of Household filing status are similar but not identical to the criteria for dependency exemptions. It helps to study them together.

3. Standard Deduction A deduction is an amount subtracted from a taxpayer's adjusted gross income (AGI) before taxes are calculated. It reduces the amount of income taxed and therefore the tax. A deduction is an amount subtracted from a taxpayer's adjusted gross income (AGI) before taxes are calculated. It reduces the amount of income taxed and therefore the tax. Most taxpayers can choose either what is called the standard deduction, or an itemized deduction (to be discussed in a later session), whichever is more advantageous. For most taxpayers, certainly for most taxpayers we see, the standard deduction is best. Most taxpayers can choose either what is called the standard deduction, or an itemized deduction (to be discussed in a later session), whichever is more advantageous. For most taxpayers, certainly for most taxpayers we see, the standard deduction is best.

4. Standard Deduction (cont’d.) A standard deduction for most taxpayers is a predefined dollar amount that is based on the taxpayer’s filing status. A standard deduction for most taxpayers is a predefined dollar amount that is based on the taxpayer’s filing status. An increased standard deduction is available to taxpayers who are 65 or older and/or blind An increased standard deduction is available to taxpayers who are 65 or older and/or blind The standard deduction is generally lower for taxpayers who can be claimed as a dependent on another taxpayer’s return. The standard deduction is generally lower for taxpayers who can be claimed as a dependent on another taxpayer’s return. TaxWise calculates the standard deduction automatically based on information entered by the preparer. TaxWise calculates the standard deduction automatically based on information entered by the preparer.

5. Standard Deduction for Dependents The standard deduction is generally lower for an individual who can be claimed as a dependent on another person’s tax return. The standard deduction is generally lower for an individual who can be claimed as a dependent on another person’s tax return. The deduction is generally limited to the greater of: The deduction is generally limited to the greater of: $950, or $950, or The individual’s earned income for the year plus $300, but not more than the regular standard deduction amount. The individual’s earned income for the year plus $300, but not more than the regular standard deduction amount.

6. Who Cannot Take Standard Deduction Filing as Married Filing Separately and the spouse itemizes. Filing as Married Filing Separately and the spouse itemizes. A nonresident or dual-status alien during the year (and not married to a U.S. citizen or resident at the end of the year). A nonresident or dual-status alien during the year (and not married to a U.S. citizen or resident at the end of the year).

7. Itemized Deduction Itemized deductions allow taxpayers to reduce their taxable income based on specific personal expenses, instead of taking the standard deduction. Itemized deductions allow taxpayers to reduce their taxable income based on specific personal expenses, instead of taking the standard deduction. If the total itemized deductions are greater than the standard deduction, the itemized deduction will result in a lower taxable income and lower tax. If the total itemized deductions are greater than the standard deduction, the itemized deduction will result in a lower taxable income and lower tax.

8. Itemized Deduction (cont’d.) In general, taxpayers benefit from itemizing deductions if they have mortgage interest, very large unreimbursed medical or dental expenses when compared to their income, or other large expenses such as charitable contributions. In general, taxpayers benefit from itemizing deductions if they have mortgage interest, very large unreimbursed medical or dental expenses when compared to their income, or other large expenses such as charitable contributions. Most taxpayers we see do not have these expenses. Some, mainly single taxpayers with mortgages, do. Most taxpayers we see do not have these expenses. Some, mainly single taxpayers with mortgages, do. Itemized deductions will be covered in a later lesson. Itemized deductions will be covered in a later lesson.