Typically, this is done by tallying up tax-deductible expenses. But to guarantee that all U.S. taxpayers have at least some income that they don’t have to pay federal taxes on—or don’t have to do any complicated calculations—there’s the standard deduction.
What is the standard deduction?
Taxpayers use tax deductions to reduce their taxable income (also called adjusted gross income or AGI). Every dollar of a tax deduction reduces your taxable income by a dollar.
How does this look with the standard deduction? Say you’re a single taxpayer who makes $65,000 per year. If you take the $12,950 standard deduction for single taxpayers on your 2022 federal income tax return, you can subtract $12,950 from the amount you owe income tax on. This would mean you only owe federal income tax on $52,050 of your income. You get to keep that $12,950 “standard deduction” without paying individual income tax on that amount.
The alternative is called the “itemized deduction.” If you opt to take the itemized deduction, you tally up the amount you spent on certain eligible expenses like gifts to charity or the interest paid on a mortgage. Then, after performing some quick calculations on Schedule A of your Form 1040, you’ll find your itemized deduction amount.
Tax deductions aren’t the same as tax credits like the Earned Income Tax Credit and Child Tax Credit. Instead of reducing your taxable income, tax credits reduce your taxes owed directly (or get you a tax refund).
For example, if you’re in the 22% tax bracket, a $1 tax deduction would only reduce your tax bill by $0.22, while a $1 tax credit reduces your tax bill by $1.
Further reading: Tax Credit vs. Tax Deduction: Keys to a Lower Tax Bill
What is the standard deduction for 2022?
Your standard deduction amount depends on your tax filing status. For example, if you’re the head of a household (unmarried with dependents paying for at least half the household costs), your standard deduction will be higher than a single person or someone who is married filing separately.
The U.S. standard deduction amounts for the 2022 tax year are:
- $12,950 for single filers
- $12,950 for married taxpayers filing separately
- $19,400 for heads of households
- $25,900 for married couples filing jointly
- $25,900 for qualifying widows or widowers
If you are blind or over 65, you might also qualify to take an additional standard deduction amount and other tax exemptions.
For single and head of household taxpayers, there is a $1,750 increase per person per instance of age over 65 or blindness. If a single person was also blind and over age 65, their additional deduction amount doubles to $3,500.
For married filing jointly, married filing separately, and qualifying widower, there is a $1,400 increase per person per instance of age over 65 or blindness. So if a married couple were both blind and over age 65, their standard deduction would increase from $25,900 to $31,500.
What is the standard deduction for 2023?
Generally speaking, the standard deduction increases every year to reflect the effects of inflation. In 2022, the standard deduction amounts are higher than they were for the 2021 tax year.
The U.S. standard deduction amounts for the 2022 tax year are:
- $13,850 for single filers
- $13,850 for married taxpayers filing separately
- $20,800 for heads of households
- $27,700 for married couples filing jointly
- $27,700 for qualifying widows or widowers
Similar to the 2022 standard deduction, if you are blind or over 65, you will still qualify to take an additional standard deduction amount and other tax exemptions.
Who can claim the standard deduction?
The standard deduction is available to most individual taxpayers. However, you cannot take the standard deduction if you:
- Are filing separately as a married individual and your spouse itemizes their deductions
- Are a nonresident alien or dual-status alien during the year
- File a return for a period of less than 12 months because you are changing your annual accounting period
- Are filing as a trust, common trust fund, partnership, or an estate
How to claim the standard deduction
You take the standard deduction when filling out your federal income tax Form 1040. (Form 1040 is the basic tax form that every taxpayer is required to file.) On Line 8, you’ll choose whether to take the standard deduction or itemize your deductions.
Use Schedule A to summarize your medical expenses, state, local, and property taxes, mortgage interest, charitable giving, and other allowable deductions. The total on line 17 of Schedule A flows to line 12a of your 1040 tax return.
Line 18 of Schedule A provides a box for you to check if you have itemized deductions less than your standard deduction but still want to itemize.
Later in Form 1040, you will subtract the standard deduction from your total income, and this is how you claim your tax savings.
Should you take the standard deduction or itemize your deductions?
You have two options when it comes to minimizing your tax bill: take the standard deduction or itemize your deductions. Itemizing your deductions only makes sense if you’ve accrued enough expenses to exceed the standard deduction.
About 90% of taxpayers take the standard deduction. In fact, it was increased as part of the 2017 Tax Cuts and Jobs Act to incentivize Americans to take it.
Generally speaking, you should calculate and compare your itemized deduction if you:
- Had high uninsured dental and medical expenses
- Paid a large amount of mortgage interest or real property taxes on a home
- Incurred disaster losses that were uninsured
- Made large contributions to qualified charities
- Paid a large amount of local taxes, including state income taxes
- Paid a large amount of state sales taxes
An example of itemized vs. standard deduction
Say you’re married, filing your income tax as a single taxpayer and trying to decide between taking the $12,950 standard deduction or itemizing your deductions.
This year, you bought a new house, and for the first time, you have mortgage interest and property taxes to increase your itemized deduction. Once you add up these costs and your charitable contributions, you find that you have $13,100 worth of deductions—$150 more than the standard deduction.
In this case, it’s wise to itemize your deductions when filing taxes because you’ll get to keep an extra $150 tax-free.
Even if you have lots of eligible expenses, you may still find that the standard deduction is larger and saves you more in taxes.
Not prepared to dig into the nitty-gritty of tax law? A tax preparation service or tax software can help you decide whether the itemized deduction is a good fit for you.
Ways to increase your itemized tax deduction
If you want to get on top of your personal finances, you’re likely looking for ways to add more tax deductions to your return. To increase the amount of tax deductions you can claim on your tax filing, though, you have to spend more on expenses that are eligible for the itemized deduction.
Expenses that are part of the itemized deduction can be found on Schedule A, the IRS form used to calculate the itemized deduction amount. These expenses include uninsured medical and dental expenses, mortgage interest, property taxes, state and local taxes, uninsured losses from a federally declared disaster, and contributions to qualified charities.
Barring unexpected dental or medical work, the easiest way to increase your itemized deduction is through charitable contributions.
Keep in mind that increasing your itemized deduction won’t decrease your tax bill by the same dollar amount. Spending $1 more to increase your itemized deduction will not reduce your tax bill by $1 and thus won’t offset the cost of the expense itself.
The standard deduction and above-the-line deductions
The standard deduction is considered a “below-the-line” deduction, which means that it’s a tax deduction that’s applied after you’ve calculated your adjusted gross income.
However, there are other tax deductions called “above-the-line” deductions. These tax deductions are included as part of your adjusted gross income calculation.
This means that even if you take the standard deduction, you can decrease your tax bill even further with above-the-line deductions. Some examples of above-the-line deductions are:
- Part of your self-employment tax
- Retirement contributions for the self-employed
- Health insurance premiums for the self-employed
- Student loan interest
Normally if taxpayers choose standard deduction, they don’t get to take advantage of the charitable giving deduction, however, the CARES Act allows taxpayers who choose the standard deduction to also deduct up to $300 in charitable deductions directly on their 1040 instead of Schedule A.