If you’re reading this, you’re probably surrounded by piles of paperwork, crumpled receipts, and a series of tax forms that seem to be in another language. It can be tempting to knock the whole pile right off of the desk and simply apply for a standard deduction for 2021. Why wouldn’t you choose the easiest option when the alternative is hours of itemizing expenses in front of a computer screen?
Do you know for sure that taking a standard deduction will help you, or might it end up costing you precious income in the long run?
Before you submit your tax forms this year, it’s worth your time to learn the differences between a standard and itemized deduction. While itemizing your deductions may be stress-inducing, it’s sometimes worth the headache. Likewise, you might be able to avoid the headache and take the standard deduction and still come out in the green this year.
We’ve created this guide to help you figure out when to take a standard deduction and when to put in the work to itemize. Keep reading to better understand the differences, and how to ensure you make the right choices before tax day!
- 1 What Is a Standard Deduction?
- 2 Who Can Take a Standard Deduction?
- 3 When Is the Standard Deduction Applicable?
- 4 Where Can You Claim a Standard Deduction?
- 5 Why Does the Government Offer a Standard Deduction?
- 6 How Much Is the Standard Deduction in 2021?
- 7 What Will Be the Standard Deduction in 2022?
- 8 Why Might Someone Itemize?
- 9 What Expenses Can I Itemize?
- 10 Taxes Are Easy with a Standard Deduction
- 11 Learn More
What Is a Standard Deduction?
About nine out of ten American taxpayers claim a standard deduction each year. Put simply, a standard deduction is a set amount of income that you do not need to pay taxes on. If you choose to itemize your taxes, that value may be higher or lower than the standard deduction, based on your situation and expenses.
For Federal income tax purposes, there is a certain threshold that the average taxpayer does not need to pay any income taxes on. This more or less describes the 0% tax bracket.
Due to inflation and other factors, the standard deduction tends to increase a small amount each fiscal year. If you are in a low-income bracket, the standard deduction might cover all of your income. For others, the standard deduction still has the potential to significantly reduce the amount of taxes that you owe the IRS, and may even result in a tax refund later in the year.
You are not required to take a standard deduction and might instead choose to itemize. This might be beneficial for individuals in higher income brackets.
Who Can Take a Standard Deduction?
On the most basic level, nearly any taxpayer who is a citizen of the United States can choose to take the standard deduction. While this means the majority of individuals qualify, several specific exceptions may disqualify you.
Any citizen considered a non-resident alien or dual-status alien during that year will be unable to claim the standard deduction, except in very specific cases. In almost all of those cases, you will need to be legally married to a legal citizen to access these loopholes. If you are in this situation, you should consider seeking assistance from a qualified tax professional to confirm that you qualify.
Furthermore, any married couple filing separately must choose the same kind of deduction. In essence, you must either both claim the standard deduction or both choose to itemize. You cannot “mix and match.”
If you are filing separately and your spouse chooses to itemize, this disqualifies you from taking the standard deduction. You must also itemize that year.
When Is the Standard Deduction Applicable?
For the average taxpayer, there is no need to think about your standard deduction until tax season when you sit down to send your paperwork off to the IRS. Even so, a little preparation might help you to make your decision easier.
One way to prepare in advance is to take a look at expenses that you might itemize if you choose to go that route when you file. You can often look up the amount of the standard deduction approximately a year in advance. If you compare the two totals, you might be able to estimate which is the wiser choice in any given fiscal year.
Where Can You Claim a Standard Deduction?
Often, claiming the standard deduction is the “simpler” way to file taxes because it only involves a single form. That form is Form 1040, which is the primary tax form that the majority of Americans use each year.
Specifically, you will want to pay attention to line number nine on that form. It will ask “Standard Deductions or Itemized Deductions (From Schedule A).” You will see a small blank space in which to print your response.
If you haven’t looked up the standard deduction for the current year, you’ll be able to see the amount right on the form, to the left of item nine. It will provide that year’s deductions for individuals filing individually, jointly, or as the head of a household.
If you choose to claim a standard deduction based on those values, simply indicate so on the form.
Why Does the Government Offer a Standard Deduction?
In essence, the option to claim a standard deduction exists as a way to streamline the filing process for the average taxpayer in America. Rather than doing complex math or hiring professionals, it allows the everyman to file their taxes fairly and easily.
Taxes are so complicated that some lawyers and professionals dedicate years of their lives to understanding the loopholes! Even so, most of that information will never apply to the average household. This is especially true for individuals and families making middle class or lower class incomes.
Taking a standard deduction is a way to file your taxes without the need to keep track of any special dates, receipts, or other information. If you’re a hard-working individual, filing your taxes shouldn’t feel like another job. If you choose to take the standard deduction, there is no record keeping required.
The standard deduction is also a major gift for individuals who may be living in a lower income bracket. It means that an individual or family who earns less will not have to pay a large portion of that income in taxes. This is because the standard deduction is the same for any taxpayer in a given year, and will cover a larger portion of that family’s income.
How Much Is the Standard Deduction in 2021?
The standard deduction for 2021 applies to your earnings in the year 2021. These amounts will apply if you file your taxes by April 15th, 2022.
The IRS has set the standard deduction for 2021 as the following:
- For single filers: $12,550
- For married couples filing separately: $12,550
- For heads of households: $18,800
- For married couples filing jointly: $25,100
- For surviving spouses: $25,100
You may be able to add an additional amount to the above-stated values if you fall into a special category. For example, blind and aged individuals (over the age of 65) can add an additional $1,350. Unmarried individuals who are not considered to be a surviving spouse can claim an additional $1,700.
Furthermore, the amount can vary if you are planning to claim dependents on your tax forms in 2021. Dependents themselves will likely be able to claim a reduced standard deduction when filing their taxes.
If a federal natural disaster affected you or your family in the year 2021, the amount of your standard deduction may be higher this year. A tax professional can assist you in calculating this revised deduction.
Remember that the tax code in the United States is complex, and other factors may affect your standard deduction. If you have extenuating circumstances or questions, you should consider consulting a tax professional for assistance. They will be able to advise you and help you choose the right option for your specific situation.
What Will Be the Standard Deduction in 2022?
The standard deduction for 2022 applies to your earnings in the year 2022. These amounts will apply if you file your taxes by April 15th, 2023.
Do note that the deadline might change based on extenuating circumstances. You may wish to double-check the tax deadline as it approaches because you may gain additional time to file.
The IRS has set the standard deduction for 2022 as the following:
- For single filers: $12,950
- For married couples filing separately: $12,950
- For heads of households: $19,400
- For married couples filing jointly: $25,900
- For surviving spouses: $25,900
The deduction for individuals in special categories has also increased for 2022. Blind and aged individuals (over the age of 65) can add an additional $1,400 to their deduction. Unmarried individuals who are not considered a surviving spouse may claim an addition $1,750.
Furthermore, the amount can vary if you are planning to claim dependents on your tax forms in 2022. Dependents themselves will likely be able to claim a reduced standard deduction when filing their taxes.
If a federal natural disaster has affected you or your family in the year 2022, you can expect a higher deduction for this fiscal year.
Why Might Someone Itemize?
The IRS designed a lot of the American tax code with “incentives” in mind. The government stands to benefit when its citizens make certain types of purchases. Often, someone might choose to itemize because they have made a purchase that offers them a financial incentive or tax break that year.
There is no limit on the number of itemized deductions that you can take in any given year. Someone whose expenses entitle them to many tax cuts or incentives has a lot of motivation to itemize their taxes. Often, the very wealthy might end up paying a small amount of taxes as a result of making these qualifying purchases.
The option to itemize also has the potential to make things fairer, particularly for families going through a challenging time. For example, you may not need to pay taxes on certain medical expenses. If your family’s medical expenses exceed 7.5% of your adjusted gross income, it benefits you to itemize so you can claim that tax break.
When you choose which deduction to take, you always want to ensure that you are getting the largest tax break possible. In some cases, particularly in lower-income brackets, the standard deduction is the easiest and more beneficial option. In other situations, itemizing might yield a larger tax break, and will be worth the additional effort involved.
Taking an itemized deduction is only a better choice if your deduction exceeds the standardized amount set by the IRS. To put it very simply, if you would owe the government less, it’s worthwhile to itemize!
What Expenses Can I Itemize?
Even at lower income levels, certain expenses might make the choice to itemize worthwhile. In the contemporary world, many individuals have recently made the move to remote or hybrid work. Often, that meant shifting into freelance roles or self-employment.
There are many tax benefits for the self-employed, such as home office, internet, and phone bill deductions. If you have made a major change in 2021, it may be worthwhile to itemize your taxes this year to claim these expenses.
If you have bought a home this year, or have made considerable charitable contributions, you may also be able to claim a major tax break.
There are also quite a few tax incentives and breaks for students, especially those who have taken out student loans to afford their education. Look into the American Opportunity tax credit, the Lifetime Learning Credit, and the Student Loan Interest Deduction.
There are many additional deductions for home energy, educators, adoption, and more. Even so, there is still a good chance that the standard deduction will provide you with a larger tax break. If you are unsure if itemizing is the more beneficial choice this year, a qualified tax professional can help you compare.
Taxes Are Easy with a Standard Deduction
At the end of the day, the option to take a standard deduction makes life easier and more affordable for the average American. It takes the paperwork and guesswork out of filing your taxes. While the tax code may be confusing, it exists to make things fair and simple for the largest number of taxpayers possible.
Tax Savers Online has many more posts that can help you to make the most informed decisions possible about your taxes, finances, and more. Consider checking out this post to learn more about the deductions that you might be able to claim as a freelancer this year.