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Tax Deductions: What You Need to Know to Pay Your Taxes

by | 01-19-2020 | file tax, Tax Relief

The government doesn’t make you pay more taxes than what is reasonable; in fact, the tax code allows us to put a portion of our salaries aside to meet our living expenses if we take advantage of this and do as we should. While this might not always be the case, for most people, it is. The IRS offers taxpayers two options for reducing their taxable incomes. One is the standard deduction; the other one is the option to itemize tax deductions.

tax deductions

What you need to know about tax deductions

Taxpayers can deduct the standard income tax deduction amounts for the year or they can add up the tax-deductible expenses that they incurred over the past year (itemized deductions). Examples of what is allowed to be deducted if they choose to itemize include charitable contributions and medical expenses.

Taxpayers should choose the option of the two that will decrease their taxable income the most. Choosing this option will reduce their tax liability, and as a result, they will pay less tax this way. In other words, the choice is whichever is greater – the standard tax deduction for the year or the total of all over the taxpayer’s itemized deductions. About 60% of taxpayers choose the standard tax deduction, according to the IRS.

The Standard Tax Deduction

Your standard income tax deduction amount depends on your filing status, your age, and whether or not you are blind. The deduction amount changes each year. This table will show you the current standard income tax deduction amount for 2020.

The Standard Income Tax Deduction Amounts for 2020
Filing Status Deduction Amount
Single $12,400
Head of Household $18,650
Married Filing Jointly $24,800
Married Filing Separately $12,400

The Additional Standard Deduction Based on Age or Blindness

Those who are of the retirement age or older receive an additional standard deduction; this is true for those who are blind as well. The additional standard deduction amount is $1,300 for most, and it’s $1,650 for those who are unmarried.

The Special Rule for Married Couples Who File Separate Returns

If married, taxpayers must do the same thing. They must either both take the standard tax deduction, or they must both itemize their deductions if married and filing separate tax returns. One spouse can’t take the standard deduction while the other one itemizes. It doesn’t work that way.

The best way to determine which way is best is to calculate taxes both ways with both spouses itemizing or with both spouses taking the standard tax deduction. This way taxpayers know which option will give them the best tax savings.

The Standard Deduction Amounts for Dependents

Taxpayers who can be claimed as dependents on someone else’s tax return have different standard tax deduction amounts. For this year, the standard deduction for dependents is limited to either $1,100 or your earned income plus $350, whichever option is more. The deduction is capped at the amount of the standard deduction for your filing status and no more.

TCJA (Tax Cuts and Jobs Act) Changes

The TCJA (Tax Cuts and Jobs Act) effectively doubled the standard deduction in 2018 and because of this, changes occurred in some itemized deductions. It also made taking the standard tax deduction the better choice for many taxpayers, so the changes were positive for some taxpayers.

However, some of the changes were not so positive for certain taxpayers. For example, the itemized deduction for state and local taxes is capped at $10,000. This restriction is not great for those who were previously able to claim more than $10,000.

Another negative change that was made by the TCJA was the deductions available for casualty theft and losses. It is now a new restriction stating the stolen property and losses are limited to federally declared disaster areas. This is a disadvantage for those who met this criterion but were not in federally declared disaster areas.

The act is not so bad though. Per the IRS, for 2020, there is no limitation on itemized deductions, as that limitation was eliminated by the TCJA (Tax Cuts and Jobs Act).

For more information about what you need to know when paying taxes, check out this link.

Everything You Need to Know for Filing Taxes this Year