Standard Deduction
The standard deduction was placed in the tax law to provide relief for taxpayers with few itemized deductions. If a taxpayer’s gross income is less than the standard deduction amount, the taxpayer has no taxable income. The amount of the standard deduction is based on filing status, as in Table 5.1, “2008 Standard Deduction”.
Table 5.1. 2008 Standard Deduction
| Filing status | Amount ($) |
|---|---|
| Single | 5,450 |
| Married filing jointly | 10,900 |
| Married filing separately | 5,450 |
| Head of household | 8,000 |
| Qualifying widow(er) | 10,900 |
Additional amounts are provided for old age and blindness. Taxpayers who are 65 years of age or older or blind are entitled to an additional standard deduction amount. For 2008, the additional standard deduction amount is $1,350 for unmarried taxpayers and $1,050 for married taxpayers and surviving spouses. Taxpayers who are both at least 65 years old and blind are entitled to two additional standard deduction amounts. The additional standard deduction amounts are also available for the taxpayer’s spouse but not for dependents.
Example
Linda is single and 70 years old in 2008. Her standard deduction is $ 6,800 ($5,450 plus an additional $1,350 for being 65 years of age or older).
Example
Lea and Leo are married in 2008 and file a joint return. Leo is age 68, and Lea is 63 and meets the test for blindness. Their standard deduction is $13,000 ($10,900 plus $1,050 for Leo being 65 years or older and another $1,050 for Lea’s blindness).
Some individuals are not eligible to use the standard deduction. Instead, the following taxpayers must itemize
a married individual filing a separate return, whose spouse itemizes deductions;
a nonresident alien;
an individual filing a short-period tax return because of a change in the annual accounting period.
Example
Mark and Lisbeth are married individuals who file separate returns for 2008. Mark itemizes deductions on his return. Lisbeth’s AGI is $19,000, and she has itemized deductions of $1,500. Lisbeth’s taxable income is calculated as follows:
| Adjusted gross income | $19,000 |
| Itemized deductions | ($1,500) |
| Exemption amount | ($3,500) |
| Taxable income | $14,000 |
Since Mark itemizes deductions, Lisbeth must also itemize deductions and is not entitled to use the standard deduction amount.
A dependent filing a tax return may have a reduced standard deduction. The total standard deduction may not exceed the greater of $900 or the sum of $300 plus dependent’s earned income up to the basic standard deduction amount, plus any additional standard deduction amount for old age or blindness. The standard deduction amount for old age and blindness is only allowed when a dependent files a tax return. It is not allowed to increase the standard deduction of the taxpayer claiming the dependent. Also, remember that a dependent may not claim a personal exemption on his or her own return.
Example
Lori is 6 years old, earned $7,800 as an actor in a commercial during 2008. A dependency exemption for Lori is claimed by her parents on their tax return. Lori is required to file a tax return, and her taxable income is $2,350 ($7,800 less $5,450, the standard deduction amount). She is not allowed to claim an exemption for herself. If Lori had earned $700, her standard deduction would be $1,000 (the greater of $900 or $1,000 [$700 + $300]) and she would not owe tax or be required to file a tax return.
In 2008, the standard deduction has an added benefit. Property taxes on a personal residence are an itemized deduction. If a taxpayer claims a standard deduction, property taxes paid by the taxpayer provide no tax deduction. That is, they did not until 2008 when Congress authorized a new add-on to the standard deduction. Taxpayers who do not itemize can claim property taxes as an additional standard deduction. The deduction allowed is the lesser of the amount paid or $1,000 ($500 on a single, head of household or married filing separately return).
Example
Paul and Jocelyn purchased a home in the later half of 2008. Their itemized deductions, which included $950 in property taxes, do not exceed the standard deduction. Paul and Jocelyn can claim a standard deduction of $11,850 ($10,900 basic standard deduction + $950 property tax allowance).
Go to Chapter 20, Publication 17 and read the entire chapter: Standard Deduction.
Problem
Fay and Fred bought a house in 2008 and paid $800 in real estate property tax. Their other itemized deductions totaled $10,200. Which of the following options should they select?
Use the standard deduction
Itemized deductions
Use the standard deduction with the property tax allowance
None of the above
