Standard Deduction or Itemized Deductions
Should You Take the 1040 Standard Deduction on Line 40?
Everyone is entitled to claim tax deductions to minimize what they’ll end up paying in taxes. Deductions and exemptions reduce taxable income before income tax is computed. The Internal Revenue Service gives you two options: You can take the standard deduction or you can itemize your deductions on line 40 of your 1040 tax return—whichever is more advantageous to you.
The Standard Deduction
The amount of the standard deduction you’re entitled to depends on your filing status.
As of 2016, the deduction amounts are:
- Single: $6,350
- Married Filing Jointly: $12,700
- Married Filing Separately: $6,350
- Head of Household: $9,350
If you and your spouse file separately, you must both take the standard deduction or you must both itemize.
Use page 32 of the worksheet in the Instructions for Form 1040 provided by the IRS to calculate your standard deduction if someone else can claim you as a dependent. The deduction for a dependent is the larger of $1,050 or your earned income plus $350. It cannot exceed the deduction of $6,350 for a single filer.
Special Rules for the Elderly and the Blind
People over age 65 and those who are legally blind are entitled to a standard deduction calculated by adding an additional amount to the deduction for an individual's filing status plus. Additional amounts for 2018 are:
- $1,550 if you’re filing as single or head of household
- $1,250 if you’re married and filing either jointly or separately
Itemized deductions allow you to convert otherwise taxable income into nontaxable income if you spend money on certain tax-privileged items. You cannot claim both the standard deduction and itemize other deductions as well. If you choose to itemize, tally up your various deductions item by item on Schedule A and enter the total on line 40 of your 1040 return.
File Schedule A with your tax return.
Some itemized deductions include:
- Medical, dental, prescription drugs and other health care costs, including some insurance premiums
- State and local income taxes or state and local sales taxes
- Real estate (property) taxes
- Personal property taxes, such as motor vehicle registration fees
- Interest paid on a home mortgage
- Interest paid on investments, such as margin interest
- Cash contributions to charities and churches
- The fair market value of non-cash contributions to charities and churches
- Personal losses due to theft or casualty
- Job-related expenses that your employer did not reimburse you for, including union dues, costs of purchasing or cleaning uniforms, job-related education and professional development, job-related travel and home office expenses
- Tax preparation fees
- Investment fees and expenses, such as IRA custodial fees and annual brokerage fees
- Safe deposit box fees,
- Gambling losses, but only to the extent of gambling winnings
Limitations on Itemized Deductions
Some itemized deductions are limited to threshold amounts, and your overall total itemized deductions may be limited by your adjusted gross income.
- Health care expenses are only deductible to the extent that they exceed 10 percent of your AGI. For example, if your AGI from line 37 of your Form 1040 is $30,000, your threshold for medical expenses is $3,000. Only the amount of medical, dental and other health care expenses that exceed this number can be deducted.
- Job expenses and miscellaneous deductions are deductible only if they exceed 2 percent of your AGI. If you have an adjusted gross income of $30,000, your threshold amount for these miscellaneous deductions is $600. The deductible amount of $1,000 in job-related expenses is $400—$1,000 minus $600.
- Charitable donations are generally limited to no more than 50 percent of your adjusted gross income. If you donate stocks, bonds, works of art or other assets on which you would have paid capital gains tax, this drops to 30 percent, but excess charitable contributions can be carried over to future years' tax returns for up to five years.
- Casualty and theft losses are limited by both a $100 threshold per loss and an overall threshold of 10 percent of your adjusted gross income. If you suffered two losses last year, each is subject to a $100 limitation. Let's say your stolen laptop was worth $1,500. Applying the $100 limitation, you have a loss of $1,400. If you also suffered damage to your home in a natural disaster, the same $100 limitation applies to that loss. Now your total casualty and theft losses when added together after these $100 reductions are reduced further by 10 percent of your AGI.
Which to Choose?
The IRS indicates that most taxpayers choose the standard deduction. All the work involved in itemizing may add up to only a handful of dollars saved over the standard deduction amount. Otherwise, you’ll save more in taxes if you invest the time and effort into itemizing. In the end, it comes down to your personal tax situation.
NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.