The U.S. Internal Revenue Service (IRS) sets tax rates and percentages. Taxpayers set aside a portion of their income to pay debts owed to the IRS. To do this, you must only count tax-deductible expenses.
To ensure that all citizens are treated equally and fairly, the IRS established the “standard deduction”, where they set certain amounts in wages for which they are not required to pay tax and prevents others from making complex calculations.
What is the standard deduction?
The standard deduction is a specific figure that citizens use to reduce taxable income when filing an annual income tax return. In the following paragraph, we will develop an example to exemplify the process better.
Let’s assume that John is a single man earning $70 thousand per year. If John takes the 2021 standard deduction, which would be $12,550 for single taxpayers, he can subtract this amount from his total and pay tax on this result.
An alternative to this process is called an “itemized deduction”. In this case, the amount you spent on certain eligible payments, such as donations to charities or interest on a mortgage, is added back.
What is the standard deduction for 2021 and 2022?
The standard deduction varies each year in line with inflation and, therefore, is expected to continue to increase yearly. We will discuss the amounts for 2021 and 2022.
The standard deduction for 2021
The standard deduction varies depending on the taxpayer’s marital status. For example, if you are a parent, the deduction amount is higher for you. The amounts for 2021 are:
- Single/individual taxpayers: $12,550.
- Married taxpayers filing separately: $12,550
- Heads of household: $18,000
- Married couples filing jointly: $25,100
- Qualified widows and widowers: $25,100
NOTE ONE:
Single taxpayers and heads of the household may increase $1,700 per dependent if the holder is over age 65 or blind. If a person is single, blind, and over age 65, they will receive a $15,950 deduction.
NOTE TWO:
Married filing jointly, married filing separately, and qualified widow(er)s have an increase of $1,350 if they happen to be individuals over age 65 or blind. If a couple were blind and over 65, they would increase a deduction from $25,100 to $30,500.
Deduction for the year 2022
The figure is a reflection of inflation, so the increase for the next tax year is estimated as follows:
- Single taxpayers/individuals: $12,950
- Married taxpayers filing separately: $12,950
- Heads of household: $19,400
- Married couples filing jointly: $25,900
- Qualified widows and widowers: $25,900
As for 2021, blind persons and persons over 65 will have an additional deduction above the standard deduction.
Who can claim the deduction on their tax return?
All taxpayers can make use of this deduction; however, what we will name in the following line cannot take advantage of the benefit:
- You file a separate return being married, and your spouse itemizes your deductions
- You are a non-resident alien or deal-status alien during the year
- You file a return with less than twelve months to file because you are changing the annual accounting period.
- You file as a trust, common trust fund, partnership or estate.
You can claim the deduction when:
- The result is less than your itemized deductions. You can itemize and economize the money. If the result exceeds your itemized deductions, taking the standard deduction may be worthwhile and saving time may be valuable
- Using the standard deduction is easier than itemizing, but if you have a home equity loan or mortgage, it may be better to enumerate it to save money
- When using tax software
How do you claim a standard deduction?
When completing Form 1040-X, mark on line eight whether you want the standard deduction or itemize. With Schedule A, you can summarize your medical expenses, state and local taxes, mortgage interest, gifts and more. Line 17 of Schedule A directs you to line 12A of your return on the Form.
Line 18 of Schedule A has a box where you should check if you have itemized deductions that are less than the standard deduction but still want to itemize. In the next section, you will subtract the standard deduction from your total income and claim your tax savings.