Standard tax deduction can cut your taxes substantially
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The standard tax deduction is a safety valve. It reduces the taxable amount by a flat sum. However, you need to see what benefits you more – standard tax deduction or itemised deduction. The latter is available on a range of items like medical expenses, charitable payments, mortgage interest, etc. Under the federal law you can avail only one of the two.
The deduction slabs are usually revised every year so that the tax benefit keeps pace with inflation. The actual deduction, however, varies with the filing status of the individual.
Thus, the standard deduction available to a single individual in 2004 was $4,850; for the head of household it was $7,150; for a married couple filing a joint return it was $9,700; for a qualifying widow(er) with dependent child it was $9,500; and for a married couple filing separate returns it was $4,850.
The law also provides for higher deduction to taxpayers who are more than 65 years old or those who are blind. Those whose spouses are 65 years old or more or blind can also claim a higher deduction.
As against this, those who feature in someone else's deductions get a lesser deduction. There is a clause for students too: scholarships and grants are considered income and they must keep it in mind while asking for deductions.
The benefit is not available to those who are married but whose spouse itemizes deductions; those who file a tax return for a short tax year because of a change in their annual accounting period; and to those whose status is that of a non-resident or dual-status alien. However, if you are a non-resident alien who is married to a U.S. citizen and choose to be treated as a US resident then you can avail the standard deduction.
The next time you file your returns, take a close look at the standard deduction you are entitled to. It could work better and simpler than the itemized approach.
Written by: the Editor
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