Standard Deduction

AAA

DEFINITION of 'Standard Deduction'

A base amount of income that is not subject to tax and that can be used to reduce a taxpayer's adjusted gross income (AGI). 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.

INVESTOPEDIA EXPLAINS 'Standard Deduction'

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. The standard amounts are adjusted for inflation each year.

RELATED TERMS
  1. IRS Publication 929: Tax Rules ...

    A document published by the Internal Revenue Service (IRS) that ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Adjusted Gross Income - AGI

    A measure of income used to determine how much of your income ...
  4. Married Filing Jointly

    A filing status for married couples that have wed before the ...
  5. Inflation

    The rate at which the general level of prices for goods and services ...
  6. Tax Shield

    A reduction in taxable income for an individual or corporation ...
RELATED FAQS
  1. Which is better for tax deductions, itemization or a standard deduction?

    Each deduction that you claim may result in a decrease in the amount of taxes that you owe. However, whether you receive ... Read Full Answer >>
  2. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  3. How is compound interest taxed?

    Compound interest is money that is earned and added to a principal balance and then earns additional interest. Adding interest ... Read Full Answer >>
  4. According to the law of supply and demand, what is the effect of an increase or decrease ...

    Standard economic analysis shows that taxes of any form, including income taxes, tend to cause deadweight loss in the market. ... Read Full Answer >>
  5. How does the Fair Accounting Standards Board (FASB) regulate deferred tax liabilities?

    The Financial Accounting Standards Board (FASB) requires that deferred tax liabilities be recognized whenever there is a ... Read Full Answer >>
  6. What cost basis reporting rules are set by the Internal Revenue Service (IRS)?

    In accounting and tax terms, cost basis refers to the price paid for an asset. It's an important calculation for all businesses ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Calculating The Mortgage Interest Tax Deduction

    The amount of money you save by paying your mortgage off quickly will far exceed any benefit from the mortgage interest tax deduction.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Professionals

    Present Your Clients With A Year-End Review

    If you want to build a better rapport with your clients, this is a good place to start.
  4. Taxes

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  5. Taxes

    How To Cut Your Alternative Minimum Tax

    Save yourself money by lowering the amount of tax you owe.
  6. Brokers

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
  7. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.
  8. Taxes

    What is Withholding Tax?

    Withholding tax is the income tax federal and state governments require employers to withhold from employee paychecks.
  9. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  10. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center