And since then, the standard deduction has increased each year incrementally and continues to do so; while the standard deduction for single filers is $12,200 for the 2019 tax year, it will be $12,400 for the 2020 tax year.
Americans, 65 years old and over, get a big tax break, too. In addition to getting the standard deduction, individual tax filers who are 65-or-over can claim an additional $1,650 deduction on their taxes, and married filers over 65 can claim an extra $2,600 ($1,300 if married, filing jointly when only one spouse is 65 or older).
In general, the standard deduction is preferable if you don’t have a long list of itemized deductions. It keeps you from recording expenses, hanging on to receipts, and keeping a ledger of itemized expenses.
Itemized Deductions Another way to slash your taxable income is by using itemized deductions.
The savings can really add up in doing so. If you’re a taxpayer in the 15% tax bracket , every $1,000 listed as itemized deductions on your tax return saved you $150, according to H&R Block. So $5,000 in itemized deductions can save you $750 off your tax bill.
All itemized deductions for individual and married taxpayers should be included on IRS Tax Form 1040 , in Schedule A. Itemized tax deductions are not allowed on IRS Tax Form 1040A or 1040EZ—only the standard deduction can be taken on those forms.
Itemized deductions cover a wide array of expenses incurred over the course of a year that would otherwise be deemed as taxable by the IRS. Typical itemized deductions include:
Mortgage interest Healthcare expenses Property taxes Charitable expenses Investment interest expense Tax preparation fees State and local taxes If your list of itemized deductions adds up to more in tax savings than your standard deduction, then itemizing is the way to go. Just be sure to save receipts and record your expenses on a regular basis, and store them safely in the event the IRS asks about an itemized deduction.
The formula for figuring out your estimated itemized deductions is easy—list your expenses and count them up. Then, subtract your total deductions from your taxable income to calculate your itemized deductions.
How to Calculate Taxable Income There’s no hard and fast formula for calculating taxable income, as your total taxable income depends on your tax deductions, filing status, and the standard deduction. Just know that your goal is to take the maximum amount of deductions possible to lower your tax bill.
Once you have your calculator in place, take these steps to calculate your taxable income:
Figure out your total taxable income for the year, including both earned and unearned income Calculate your adjusted gross income . Your adjusted gross income is your gross annual income, with any adjustments (or above the line tax deductions ) subtracted Subtract any standard or itemized tax deductions from your adjusted gross income Subtract any tax exemptions you are entitled to, like a dependent exemption Once you’ve subtracted any tax form adjustments, deductions, and exemptions from your gross income, you’ve arrived at your taxable income figure