Standard deduction

06 Dec, 2015 TAX LAW 0

Chapter 21
Standard deduction

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What’s New

Standard deduction increased. The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2014 than it was for 2013. The amount depends on your filing status. You can use the 2014 Standard Deduction Tables in this chapter to figure your standard deduction.

This chapter discusses the following topics.

How to figure the amount of your standard deduction.
The standard deduction for dependents.
Who should itemize deductions.

Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lower tax.

The standard deduction is a dollar amount that reduces your taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). The standard deduction is higher for taxpayers who:

Are 65 or older, or
Are blind.

Persons not eligible for the standard deduction. Your standard deduction is zero and you should itemize any deductions you have if:

Your filing status is married filing separately, and your spouse itemizes deductions on his or her return,
You are filing a tax return for a short tax year because of a change in your annual accounting period, or
You are a nonresident or dual-status alien during the year. You are considered a dual-status alien if you were both a nonresident and resident alien during the year.

Tax Breaks and Deductions You Can Use Checklist

Standard deduction. A standard deduction is allowed for every taxpayer who does not itemize deductions. An additional standard deduction is allowed for taxpayers who are blind or age 65 or older. Generally, you would use the standard deduction only if it’s more than the total of the deductions you would otherwise itemize.

Itemizing even when the standard deduction is higher. Sometimes it may make sense to elect to itemize your deductions even when your standard deduction is higher. That may be the case if you’re subject to the alternative minimum tax (AMT) (see chapter 31, How to figure your tax) since the standard deduction must be added back in full when calculating the AMT. You might have a lower overall tax if your itemized deductions consist of amounts that are allowed for AMT purposes, such as charitable contributions and mortgage interest. Another reason to itemize might be for state tax purposes. To make this election you check the box at the bottom of Schedule A (Form 1040).

Note. If you are a nonresident alien who is married to a U.S. citizen or resident alien at the end of the year, you can choose to be treated as a U.S. resident. (See Publication 519, U.S. Tax Guide for Aliens.) If you make this choice, you can take the standard deduction.

EXPLANATION

Married persons who file separate returns must be consistent in claiming the standard deduction or itemizing deductions. If one spouse itemizes deductions, the other spouse must also itemize deductions and cannot claim the standard deduction.

Example

Mike and Denise are married. Each of them has a very successful business, and this year they plan to file separate income tax returns. Denise is very detail-oriented and keeps accurate records of all her itemized deductions. Mike has never cared much for what he considers tedious accounting, and would be happy to avoid this chore by claiming the standard deduction on his return ($6,200 in 2014 for a married taxpayer filing separately). If Denise itemizes deductions on her 2014 return, however, Mike will not be eligible to claim the standard deduction.

Standard Deduction Amount

The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Generally, the standard deduction amounts are adjusted each year for inflation. The standard deduction amounts for most people are shown in Table 21-1.

Decedent’s final return.

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Tags: EY Tax Guide 2015