Choosing whether to take the standard deduction or to itemize deductions on your U.S. federal income tax return will have an effect on your total tax liability for the year. Certain taxpayers may not be able to take the standard deduction, or their standard deduction may be limited. You should be aware of the rules and limitations that apply, and then take into account your personal financial situation for the year to see which method is best for you.
Most taxpayers can choose whether to take the standard deduction or to itemize deductions on their federal income tax returns. The standard deduction is a fixed dollar amount that depends on your filing status. And, the standard deduction is higher for taxpayers who are age 65 or older, or blind. The standard deduction amounts generally change each year and can be found in the instructions and publications the Internal Revenue Service (IRS) updates each year.
Taxpayers Who Cannot Take the Standard Deduction
There are certain persons who cannot take the standard deduction and must itemize. These include:
Married persons filing separately, whose spouse itemizes deductions. (But you can agree to both itemize or both take the standard deduction, whichever way results in a lower overall tax for the two of you.)
A taxpayer filing a tax return for a short year, because of a change in the annual accounting period.
Persons who were nonresident or dual-status aliens at some time during the year. A dual-status alien is a person who was both a nonresident and a resident alien during the year. But if you are a nonresident alien married to a U.S. citizen or resident at the end of the year, you can elect to be treated as a U.S. resident, in which case you could take the standard deduction. But if your are treated as a U.S. resident, you will be subject to U.S. federal income tax on your worldwide income.
Taxpayers Whose Standard Deduction May Be Limited
If you can be claimed as a dependent on another person’s tax return, your standard deduction is generally limited to the greater of:
$800, or
Your earned income for the year plus $250, but in this case the amount cannot exceed the regular standard deduction amount.
If you (or your spouse if you are married and are filing jointly) can be claimed as a dependent by someone else, you will need to use a table entitled “Standard Deduction Worksheet for Dependents” that you can find in the instructions for Form 1040 or 1040A, and in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Earned Income
Earned income for purposes of a limited standard deduction includes salaries, wages, tips, professional fees, and any other amount received for services you performed. If you are a student, the amount of any scholarship or fellowship you had to include in income also counts as earned income in figuring your standard deduction.