The two main methods provided by the IRS for decreasing taxable income are standard deductions and itemized deductions. The standard is preferred by many taxpayers due to the ease in filing. Surely this wouldn’t have been the best method for every taxpayer.
The difference is that the standard deduction permits everyone to have a base amount subtracted from AGI—the amount of income that is taxed. This amount increases due to inflation every year. In addition, the standard deduction changes according to the filing status of the individual; those over 65 and who are also blind get an additional amount, called the additional standard deduction. However, dependents whose tax returns are filed by someone else will receive a reduced standard deduction.
For example, in 2024, a married couple filing jointly and having an AGI of $125,000 has a standard deduction of $29,200. This would reduce their taxable income to $95,800, thereby lowering tax liability.
In fact, the standard deduction is an amount that you would subtract from your AGI without having to document anything. This is usually available for most taxpayers, whether they have other deductible expenses or not. A taxpayer can claim other eligible expenses such as home mortgage interest, medical expenses, or business mileage to reduce tax liability rather than claim the standard deduction. If it exceeds the standard deduction, itemizing expenses would benefit most taxpayers. On the other side, in claiming the standard deduction, taxpayers relinquish a number of other deductions or tax credits.
The year 2024 would mark the time when “standard deduction” would be given in the amounts $14,600 for specific single filers or those married filing separately, $29,200 for married couples filling out a joint return or a surviving spouse, and $21,900 for heads of households. Additional amounts may be available for taxpayers aged 65 and above or blind. These shall apply for tax returns filed in 2025.
Already, the IRS has announced the standard deduction amounts for 2025, which would be a slight increase from the ones above. In 2025, single filers or individuals married but filing separately would get $15,000, while joint filers or surviving spouses would enjoy a $30,000 reduction, with heads of household collecting a reduced amount of $22,500.
The additional standard deduction provides added relief for those aged 65 or older or blind. For those persons 65 and older or who are blind, a certain additional amount is added to their general standard deduction. This amount is determined on the basis of the filing status. For example, it says that in 2024 a single person over 65 can add $1,950 as an additional deduction. If a couple files jointly, both persons have to be 65 or older for added amounts to be claimed. In the example presented, that amount will be $3,100.
These amounts will marginally increase in 2025. A single filer aged 65 and above or legally blind will get an extra $2,000, while both married couples aged 65 and above can add $3,200 to their standard deduction. The idea of this provision is to counterbalance the escalated living expenses incurred by elderly people.
In 2024, for dependents who are filing their own tax returns but are still claimed by someone else, the standard deduction will be slightly different. The standard deduction for dependents will be $1,300 or earned income plus $450, whichever is less, up to the standard deduction for the taxpayer’s filing status in 2025. The amount will be $1,350 for 2025. There are specific circumstances in which the standard deduction is unavailable.
First, the spouse of a married taxpayer must file separately, and the specified taxpayer must itemize if one spouse itemizes deductions. Similarly, trusts, estates, and partnerships cannot claim the standard deduction. In special circumstances, nonresident aliens and dual-status aliens may also lose eligibility for the standard deduction. It is crucial to take time to compare the standard deduction to the possible itemized deductions for anyone trying to decide which deduction to take.
If you have substantial deductible expenses, such as mortgage interest or unreimbursed medical costs, itemizing may yield greater savings. Tax software can automatically calculate which option would be more favorable for the taxpayer, or a professional tax preparer can analyze the case to ensure that it will be the best decision made. All in all, this deduction clearly presents an easy way to avail itself, but for complex financial situations, itemizing deductions may be advantageous in going even further in reducing the taxable income.
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