The Tax Cuts and Jobs Act just about doubled the standard deduction amounts for individuals for 2018 through 2025. As a result, the law eliminated or curtailed various itemized deductions. Today, most individuals (the Tax Foundation estimates 90%) choose the standard deduction instead of itemizing personal deductions. You have to decide which option is better for your situation. You can’t do both.
Which standard deduction amount is for you?
The amount of the standard deduction depends on your filing status.
|Filing status||2019 returns||2020 returns|
|Married filing jointly and qualifying widow(er)s||$24,400||$24,800|
|Head of household||$18,350||$18,650|
|Single and married filing separately||$12,200||$12,400|
The standard deduction amount gets adjusted annually for inflation. But it can’t be claimed if married individuals file separately. If one spouse itemizes, the other must itemize too. Special rules apply to nonresident aliens and dual status aliens.
Additional Standard Deduction Amounts. Are you age 65 or older at the end of the year? Claim an additional standard deduction amount to boost the basic standard deduction amount. You are blind at the end of the year. As a result, you too can claim an additional standard deduction amount. Those who meet the age requirement and are blind claim two standard deduction amounts. The additional standard deduction amounts also depend on filing status. For both 2019 and 2020 they are:
- Joint filers, married filing separately, and qualifying widow(er)s: $1,300
- Heads of households and singles: $1,650
Dependents. An individual who is another taxpayer’s dependent has a limited standard deduction amount. For both 2019 and 2020, it is the greater of $1,100 or earned income plus $350 in unearned income. As a result, the total cannot exceed the basis standard deduction amount of the dependent’s filing status.
Impact of the Standard Deduction on your Taxes
The standard deduction is a subtraction from your adjusted gross income. This helps you arrive at taxable income. And your basic tax is figured on that. Claiming the standard deduction is in addition to other deductions you may be entitled to, such as:
- Capital losses up to $3,000 applied against ordinary income
- IRA contributions
- Above-the-line deductions for self-employed individuals (one-half of self-employment tax, self-employed health insurance deduction, deduction for contributions to a self-employed’s SEP, SIMPLE, or other qualified retirement plan).
- Health savings accounts (HSA) contributions
What the Standard Deduction Means to your Business
Claiming the standard deduction has no impact on reporting business income, deductions, and credits. As a result, you get to take the same business write-offs. It doesn’t matter whether you use the standard deduction or itemize. For example, the following business deductions are unaffected by using the standard deduction:
- Business deductions claimed on Schedule C. These deductions figure into the profit from a sole proprietorship. As a result, they are effectively deductions that factor into adjusted gross income. This is before you get to the standard deduction or itemized deductions.
- Qualified business income (QBI) deduction. This deduction for owners of pass-through entities is allowed whether claiming the standard deduction or itemizing. Like the standard deduction, the QBI deduction is a reduction of adjusted gross income. This is done to arrive at taxable income on which tax is figured.
Claiming the standard deduction does not affect self-employment tax either. For example, a self-employed individual’s obligation to pay Social Security and Medicare taxes via self-employment tax is based on an owner’s income. As a result, a sole proprietors’ income is on Schedule C. But a partners’ and S corporation shareholders’ income is on Schedule E. The standard deduction does not change business income.
Some individuals, such as very generous donors to charitable organizations, may still opt to itemize. It’s an alternative to claiming the standard deduction. Just like claiming the standard deduction, itemizing won’t impact your business-related tax write-offs. You can learn more about the standard deduction in IRS Publication 501.