Investopedia: What is a 'Standard Deduction'?

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Standard Deduction
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What is a 'Standard Deduction'

The IRS standard deduction is the portion of income that is not subject to tax and that can be used to reduce a taxpayer's tax bill. A standard deduction can only be used if the taxpayer does not choose the itemized deduction method of calculating taxable income.

The amount of the standard deduction is based on a taxpayer's filing status, age, and whether he or she is disabled or claimed as a dependent on someone else's tax return.
BREAKING DOWN 'Standard Deduction'

The income tax is the amount of money that the federal or state government takes from your taxable income. It is important to note that taxable income and total income earned for the year are not the same. This is because the government allows a portion of the total income earned to be subtracted or deducted in order to reduce the income that will be taxed. The taxable income is usually smaller than total income due to deductions, which help to reduce a taxpayer’s bill.

A taxpayer can select one of two types of deductions: itemized deduction or standard deduction. Whichever one he chooses is up to him, but he cannot use both to reduce his income. The itemized deduction option allows the taxpayer to list out all of his or expenses for the year such as property tax, medical expenses, eligible charity donations, gambling losses, unreimbursed business expense, and other costs incurred that have an effect on your bottom line tax figure. Normally, if the total value of itemized deductions is higher than standard deduction, the taxpayer would itemize. Otherwise, s/he would opt for the standard deduction.
2017 Standard Deduction Amounts

The standard deduction is a flat amount that the IRS allows all qualified taxpayers to deduct from their income every year. This amount increases each year as it is adjusted for inflation. A taxpayer who qualifies for standard deduction can subtract the authorized amount from his or her gross income to lower the amount that is subject to tax. The standard deduction for 2017 are as follows

    $6,350 for single tax payers
    $6,350 for married taxpayers filing separately
    $12,700 for married tax payers filing jointly
    $9,350 for heads of households

A single individual with gross income of $80,000 for 2017 can reduce his income by $6,350 to reduce his taxable income to $73,650. If his effective tax rate is 19.67%, he’ll end up paying 19.67% x $73,650 = $14,486.96. Without the standard deductions, his tax bill would be higher at 19.67% x $80,000 = $15,736.00.

Not all taxpayers qualify for the standard deduction though. An individual (or his spouse, if filing jointly) who was a non-resident alien at any time of the year; a married person filing separately but whose spouse itemized his or her deductions; an estate or trust; are examples of entities who cannot claim standard deductions.

The federal income tax system and some states have higher standard deductions for people who are at least 65 years old and for people who are blind. A certified statement from an eye doctor would be needed as proof for claiming a higher deductible due to total or partial blindness.

The biggest reason taxpayers use standard instead of itemized deductions is that taxpayers don't have to keep track of every possible tax deductible expense throughout the year. Plus, many people find the standard deduction amount to be fairly generous and usually greater than the total they could reach if they added up all of their tax-related expenses separately.
Schedule A
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Schedule A is a U.S. income tax form that is used by taxpayers to report itemized deductions, which can help reduce an individual's federal tax liability.
BREAKING DOWN 'Schedule A'

The Schedule A form is attached as an optional supplement to the standard 1040 form for U.S. taxpayers paying annual income taxes. Itemized deductions serve as an alternative to claiming a standard deduction for tax returns, and the individual taxpayer can apply for deductions with whichever option will elicit the biggest returns. Like the standard tax returns, itemized deductions are subtracted from the adjusted gross income (AGI) to arrive at an individual's taxable income. Schedule A forms allow taxpayers to itemize taxes within seven designated categories:
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IRS Publication 535 - Business Expenses
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A document published by the Internal Revenue Service (IRS) that provides guidance on what types of business expenses are and are not deductible. IRS Publication 535 covers the rules for deducting business expenses, and outlines the most common items taxpayers deduct.


In order to be deductible, a business expense must be considered both ordinary and necessary. "Ordinary" expenses are ones that are common in a particular industry, and "necessary" expenses are those that are helpful to conducting business. Cost of goods expenses, personal expenses and capital expenses are distinguished from business expenses, meaning that deducting costs from receipts in order to determine profits precludes those costs from also being deducted as a business expense. Capital expenses have to be capitalized rather than deducted.

BREAKING DOWN 'IRS Publication 535 - Business Expenses'

The IRS publishes a number of documents that provide additional information on business expenses: Publication 334 (Tax Guide for Small Business), Publication 463 (Travel, Entertainment, Gift and Car Expenses), Publication 525 (Taxable and Nontaxable Income), Publication 529 (Miscellaneous Deductions) and Publication 587 (Business Use of Your Home).


Certain types of business expenses, such as capital expenses, are treated differently than ordinary and necessary expenses. These will likely require the taxpayer to use different tax forms. The accounting method employed by the taxpayer determines when expenses can be deducted.

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