Standard Deduction in Taxes and How It's Calculated

What Is Standard Deduction?

The term standard deduction refers to the portion of income not subject to tax that can be used to reduce your tax bill. For 2023, the standard deduction is $13,850 for individuals, $27,700 for joint filers, or $20,800 for heads of household. The standard deductions for 2024 will be $14,600 for individuals, $29,200 for joint filers, and $21,900 for heads of households.

Understanding the Standard Deduction

The Internal Revenue Service (IRS) allows you to take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income. The amount of your standard deduction is based on your filing status, your age, and whether you are disabled or claimed as a dependent on someone else’s tax return.

Income tax is the amount of money that the federal or state government takes from your taxable income. It is important to note that taxable income and total income earned for the year are not the same. This is because the government allows a portion of the total income earned to be subtracted or deducted to reduce the income that is taxed. Taxable income is usually smaller than total income due to deductions, which help lower your tax bill.

The IRS allows taxpayers to choose between two different types of deductions—a set of itemized deductions and the standard deduction. The standard deduction is a certain figure set by the government that can be subtracted from your taxable income. When you claim this figure on your annual tax return, it reduces the amount of income on which you're taxed. The standard deduction is updated each year for inflation and reflects your tax filing status.

You can take advantage of an additional standard deduction if you are 65 or over at the end of the tax year (you are considered to be 65 on the day before your 65th birthday). People who are blind may claim an additional deduction, provided they are blind on the last day of the tax year. If you can be claimed as a dependent on someone else's tax return, your standard deduction for 2023 is limited to the greater of $1,250 or your earned income plus $400 (up to the amount of the basic standard deduction for your filing status).

Standard deduction amounts for the most current tax years are listed below.

Special Considerations

Not all taxpayers qualify for the standard deduction, which means these individuals can't claim this deduction. You can't claim it if you:

• Are married and filing separately and your spouse itemizes their deductions
• Are a nonresident or dual-status alien during the year
• File a return for less than 12 months because you change your annual accounting period
• Are a trust, common trust fund, partnership, or an estate

If the total value of itemized deductions is higher than the standard deduction, you would itemize. Otherwise, you should opt for the standard deduction.

Standard Deduction Amounts

New standard deduction amounts were introduced by the Tax Cuts and Jobs Act at the end of 2017 and nearly doubled the previous amounts. They are set to expire on Dec. 31, 2025.

Here are the standard deduction amounts for the 2023 and 2024 tax years:

As noted above, the federal income tax system and some states have higher standard deductions for people who are at least 65 and for people who are blind. Under federal guidelines, if you are 65 or older or you are blind, you can claim an additional standard deduction.

Standard deductions for an individual being claimed as a dependent cannot be more than $1,250 or the total of $400 plus the individual's earned income for 2023.

You can also increase your standard deduction by the net amount of a disaster loss, but the loss must happen in a federally declared disaster area.

Standard Deduction vs. Itemized Deductions

The biggest reason taxpayers use the standard deduction instead of itemized deductions is that they don’t have to keep track of every possible qualifying expense throughout the year. Many people may also find the standard deduction amount greater than the total that they could reach if they added up all their eligible tax-deductible expenses separately.

This may be especially true given that the Tax Cuts and Jobs Act limited total state and local tax deductions to $10,000. It also limited the mortgage interest deduction on properties bought after Dec. 15, 2017, to the first $750,000 of debt ($375,000 if married filing separately). The limit was $1 million under previous rules.

Whether you use the standard deduction or itemize your deductions is up to you, but you cannot do both. The itemized deduction option allows you to list all your tax-deductible expenses for the year, such as:

• Property tax
• Medical expenses
• Eligible charity donations
• Gambling losses
• Other costs incurred that influence your bottom-line tax figure
  

The Bottom Line

The standard deduction is a fixed dollar amount that taxpayers can subtract from their adjusted gross income to reduce their taxable income. It's available to taxpayers who do not itemize deductions, and the amount you get to deduct varies depending on filing status and other factors.