Standard Deduction(p22)

Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lower tax.

The standard deduction is a dollar amount that reduces your taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). The standard deduction is higher for taxpayers who:

• Are 65 or older, or
• Are blind.

Your standard deduction is zero and you should itemize any deductions you have if:

1. Your filing status is married filing separately, and your spouse itemizes deductions on his or her return,
2. You are filing a tax return for a short tax year because of a change in your annual accounting period, or
3. You are a nonresident or dual-status alien during the year. You are considered a dual-status alien if you were both a nonresident and resident alien during the year.If you are a nonresident alien who is married to a U.S. citizen or resident alien at the end of the year, you can choose to be treated as a U.S. resident. (See Publication 519.) If you make this choice, you can take the standard deduction.
   

The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Generally, the standard deduction amounts are adjusted each year for inflation. The standard deduction amounts for most people are shown in Table 6.

The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed.

If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. You are considered 65 on the day before your 65th birthday. Therefore, you can take a higher standard deduction for 2012 if you were born before January 2, 1948.

Use Table 7 to figure the standard deduction amount.

If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction.

If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that:

1. You cannot see better than 20/200 in the better eye with glasses or contact lenses, or
2. Your field of vision is 20 degrees or less.

If your eye condition is not likely to improve beyond these limits, the statement should include this fact. You must keep the statement in your records.

If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify.

You can take the higher standard deduction if your spouse is age 65 or older or blind and:

1. You file a joint return, or
2. You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer.

The following examples illustrate how to determine your standard deduction using Tables 6 and 7.

Larry, 46, and Donna, 33, are filing a joint return for 2012. Neither is blind, and neither can be claimed as a dependent. They decide not to itemize their deductions. They use Table 6. Their standard deduction is $11,900.

The facts are the same as in Example 1, except that Larry is blind at the end of 2012. Larry and Donna use Table 7. Their standard deduction is $13,050.

Bill and Lisa are filing a joint return for 2012. Both are over age 65. Neither is blind, and neither can be claimed as a dependent. If they do not itemize deductions, they use Table 7. Their standard deduction is $14,200.

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of:

1. $950, or
2. The individual's earned income for the year plus $300 (but not more than the regular standard deduction amount, generally $5,950).

However, if the individual is 65 or older or blind, the standard deduction may be higher.

If you (or your spouse if filing jointly) can be claimed as a dependent on someone else's return, use Table 8 to determine your standard deduction.

Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform.

For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. See chapter 1 of Publication 970 for more information on what qualifies as a scholarship or fellowship grant.

Michael is single. His parents can claim an exemption for him on their 2012 tax return. He has interest income of $780 and wages of $150. He has no itemized deductions. Michael uses Table 8 to find his standard deduction. He enters $150 (his earned income) on line 1, $450 ($150 + $300) on line 3, $950 (the larger of $450 and $950) on line 5, and $5,950 on line 6. His standard deduction, on line 7a, is $950 (the smaller of $950 and $5,950).

Joe, a 22-year-old college student, can be claimed as a dependent on his parents' 2012 tax return. Joe is married and files a separate return. His wife does not itemize deductions on her separate return. Joe has $1,500 in interest income and wages of $3,800. He has no itemized deductions. Joe finds his standard deduction by using Table 8. He enters his earned income, $3,800, on line 1. He adds lines 1 and 2 and enters $4,100 on line 3. On line 5, he enters $4,100, the larger of lines 3 and 4. Because Joe is married filing a separate return, he enters $5,950 on line 6. On line 7a he enters $4,100 as his standard deduction because it is smaller than $5,950, the amount on line 6.

Amy, who is single, can be claimed as a dependent on her parents' 2012 tax return. She is 18 years old and blind. She has interest income of $1,300 and wages of $2,900. She has no itemized deductions. Amy uses Table 8 to find her standard deduction. She enters her wages of $2,900 on line 1. She adds lines 1 and 2 and enters $3,200 on line 3. On line 5, she enters $3,200, the larger of lines 3 and 4. Because she is single, Amy enters $5,950 on line 6. She enters $3,200 on line 7a. This is the smaller of the amounts on lines 5 and 6. Because she checked one box in the top part of the worksheet, she enters $1,450 on line 7b. She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,650 on line 7c.

Ed is single. His parents can claim an exemption for him on their 2012 tax return. He has wages of $7,000, interest income of $500, and a business loss of $3,000. He has no itemized deductions. Ed uses Table 8 to figure his standard deduction. He enters $4,000 ($7,000 - $3,000) on line 1. He adds lines 1 and 2 and enters $4,300 on line 3. On line 5, he enters $4,300, the larger of lines 3 and 4. Because he is single, Ed enters $5,950 on line 6. On line 7a he enters $4,300 as his standard deduction because it is smaller than $5,950, the amount on line 6.

You should itemize deductions if your total deductions are more than the standard deduction amount. Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction.

You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit.

You may benefit from itemizing your deductions on Schedule A (Form 1040) if you:

1. Do not qualify for the standard deduction, or the amount you can claim is limited,
2. Had large uninsured medical and dental expenses during the year,
3. Paid interest and taxes on your home,
4. Had large unreimbursed employee business expenses or other miscellaneous deductions,
5. Had large uninsured casualty or theft losses,
6. Made large contributions to qualified charities, or
7. Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled.

If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. Enter the amount from Schedule A, line 29, on Form 1040, line 40.

Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. To make this election, you must check the box on line 30 of Schedule A.

If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X.

You can change methods of taking deductions only if you and your spouse both make the same changes. Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change.

You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. You both must use the same method of claiming deductions. If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. See Persons not eligible for the standard deduction, earlier.

If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1948, or are blind.

If your filing status is...	Your standard deduction is:
Single or Married filing separately	$ 5,950
Married filing jointly or Qualifying widow(er) with dependent child	11,900
Head of household	8,700
*Do not use this chart if you were born before January 2, 1948, or are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Use Table 7 or 8 instead.

Check the correct number of boxes below. Then go to the chart.
You:	Born before January 2, 1948  □		Blind  □
Your spouse, if claiming spouse's exemption:	Born before January 2, 1948  □		Blind  □
Total number of boxes you checked
IF your filing status is...		AND the number in the box above is...	THEN your standard deduction is...
Single		1	$ 7,400
		2	8,850
Married filing jointly or Qualifying widow(er) with dependent child		1	$13,050
		2	14,200
		3	15,350
		4	16,500
Married filing separately		1	$ 7,100
		2	8,250
		3	9,400
		4	10,550
Head of household		1	$ 10,150
		2	11,600
*If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 8 instead.

Check the correct number of boxes below. Then go to the worksheet.
You:			Born before January 2, 1948 □		Blind □
Your spouse, if claiming spouse's exemption:			Born before January 2, 1948 □		Blind □
Total number of boxes you checked
1.	Enter your earned income (defined below). If none, enter -0-.			1.
2.	Additional amount.			2.	$300
3.	Add lines 1 and 2.			3.
4.	Minimum standard deduction.			4.	$950
5.	Enter the larger of line 3 or line 4.			5.
6.	Enter the amount shown below for your filing status. Single or Married filing separately—$5,950 Married filing jointly—$11,900 Head of household—$8,700			6.
7.	Standard deduction.
	a.	Enter the smaller of line 5 or line 6. If born after January 1, 1948, and not blind, stop here. This is your standard deduction. Otherwise, go on to line 7b.		7a.
	b.	If born before January 2, 1948, or blind, multiply $1,450 ($1,150 if married) by the number in the box above.		7b.
	c.	Add lines 7a and 7b. This is your standard deduction for 2012.		7c.
Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also includes any amount received as a scholarship that you must include in your income.