The Standard Deduction: A Memoir-Style Post
As a writer and journalist who specializes in personal finance, I have found that the topic of deductions is often misunderstood. One particular deduction that many people overlook is the standard deduction. In this memoir-style post, I will share my experiences with the standard deduction and provide an overview of what it is, how it works, and why it’s important.
What Is The Standard Deduction?
First things first – let’s define what we mean by “standard deduction.” When you file your taxes each year, you are allowed to deduct certain expenses from your income before calculating your tax liability. These deductions can take the form of itemized deductions (which include things like mortgage interest, charitable donations, and medical expenses) or a standardized amount called the standard deduction.
In short, the standard deduction is a fixed dollar amount that reduces your taxable income without requiring you to itemize specific expenses. For example, if you’re eligible for a $12,000 standard deduction and your total taxable income for 2020 was $50,000, then your taxable income would be reduced to $38,000 after taking into account this deductible amount.
How Does It Work?
Now that we’ve covered what the standard deduction is let’s talk about how it works in practice. The IRS sets different amounts for the standard deduction based on several factors such as filing status (single/married/ head of household), age (65+), and blindness among other things.
For tax year 2019 (the most recent available at time of writing), these amounts are:
Single: $12,200
Married Filing Jointly: $24 ,400
Married Filing Separately: $12 ,200
Head of Household: $18 ,350
Note that these numbers may change from year to year as inflation occurs.
When filing taxes using Form 1040 or 1040-SR, you’ll need to indicate whether you plan to take the standard deduction or itemize your deductions. If you choose to itemize, then you must provide documentation for each expense that qualifies for a deduction. However, if your total eligible expenses are less than the standard deduction amount, it makes more sense to take the standard deduction.
Why Is It Important?
The main advantage of using the standard deduction is simplicity. Instead of keeping track of every single expense throughout the year and calculating how much each one will reduce your taxable income, all you need to do is claim a fixed amount. This can make tax preparation much easier and faster.
In addition to simplicity, there are other situations where taking the standard deduction may be advantageous. For example:
– You don’t have enough qualifying expenses: If your total itemized deductions (including things like mortgage interest and charitable donations) don’t add up to more than what’s allowed by the IRS for your filing status, then taking the standard deduction is likely better.
– You’re in a hurry: Maybe it’s close to April 15th (or July 15th during COVID times) and you haven’t had time to gather all of your receipts and paperwork related to potential itemized deductions yet.
– Your situation is uncomplicated: Some people simply don’t have any complicated financial situations or investments that require them to consider itemizing their taxes.
Of course, there are some downsides as well. For example:
– You might miss out on certain credits or benefits: Certain tax credits such as education-related ones require taxpayers who want them deducted from their taxes not choosing Standard Deduction but instead opting for Itemization.
Final Words
While we can never predict with certainty what our tax circumstances will be like in any given year, knowing about available options such as these could help us save money when it comes time for filing taxes.
If after reading this post you feel unsure about whether you should take the standard deduction or itemize your deductions, it’s best to consult a tax professional who can help guide you through the process. Always remember that there is no one-size-fits-all answer when it comes to taxes as every individual’s financial situation is unique and requires personalized attention.