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Standard Deduction, Filing Status, Exemptions

Standard Deduction, Filing Status, Exemptions. Three Separate Topics?. Why look at these topics together? They are related: The amount of the standard deduction depends on the filing status.

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Standard Deduction, Filing Status, Exemptions

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  1. Standard Deduction, Filing Status, Exemptions

  2. Three Separate Topics? Why look at these topics together? They are related: • The amount of the standard deduction depends on the filing status. • The criteria for the Head of Household filing status are similar but not identical to the criteria for dependency exemptions. It helps to study them together.

  3. Standard Deduction • A deduction is an amount subtracted from a taxpayer's adjusted gross income (AGI) before taxes are calculated. It reduces the amount of income taxed and therefore the tax. • Most taxpayers can choose either what is called the standard deduction, or an itemized deduction (to be discussed in a later session), whichever is more advantageous. For most taxpayers, certainly for most taxpayers we see, the standard deduction is best.

  4. Standard Deduction (cont’d.) • A standard deduction for most taxpayers is a predefined dollar amount that is based on the taxpayer’s filing status. • An increased standard deduction is available to taxpayers who are 65 or older and/or blind • The standard deduction is generally lower for taxpayers who can be claimed as a dependent on another taxpayer’s return. • TaxWise calculates the standard deduction automatically based on information entered by the preparer.

  5. Standard Deductionfor Dependents • The standard deduction is generally lower for an individual who can be claimed as a dependent on another person’s tax return. • The deduction is generally limited to the greater of: • $950, or • The individual’s earned income for the year plus $300, but not more than the regular standard deduction amount.

  6. Who Cannot TakeStandard Deduction • Filing as Married Filing Separately and the spouse itemizes. • A nonresident or dual-status alien during the year (and not married to a U.S. citizen or resident at the end of the year).

  7. Itemized Deduction • Itemized deductions allow taxpayers to reduce their taxable income based on specific personal expenses, instead of taking the standard deduction. • If the total itemized deductions are greater than the standard deduction, the itemized deduction will result in a lower taxable income and lower tax.

  8. Itemized Deduction (cont’d.) • In general, taxpayers benefit from itemizing deductions if they have mortgage interest, very large unreimbursed medical or dental expenses when compared to their income, or other large expenses such as charitable contributions. • Most taxpayers we see do not have these expenses. Some, mainly single taxpayers with mortgages, do. • Itemized deductions will be covered in a later lesson.

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