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Standard Deduction

The IRS allows you to take the standard deduction to help reduce your taxable income. The standard deduction is a fixed dollar amount defined by the IRS that varies based on your filing status. You can choose to take the standard deduction OR itemize your deductions (certain medical expenses, charitable donations, home mortgage interest, etc.), which can involve a bit more work. The standard deduction amount may vary depending on your filing status and/or your total income level. Keep in mind that these deductions are personal, not business, and therefore are claimed on the personal Form 1040, not your Schedule C or other business filing form.


UBER DRIVER / RIDESHARE

Dominic is a 67-year-old single, retired government worker who recently started driving for Uber to help keep him occupied. When Dom filed his 2018 tax return, he was advised by his accountant to take the standard deduction since he didn't have many expenses to itemize. Dominic claims the $12,000 standard deduction for single taxpayers, which reduces his taxable income by that amount.

AIRBNB HOST

Darius is an Airbnb host who is married and dedicates most of his time to managing his short-term rental properties while his wife is a partner at a local law firm. Darius and his wife file their taxes separately. When Darius was preparing his 2018 tax return he wanted to take the $24,000 standard deduction for married filers, however, his tax advisor informed him that he could not take the married standard deduction for his wife since he and his wife file separately. Darius took the $12,000 deduction for 'Married Filing Separately' taxpayers.

DEVELOPER / ENGINEER

Omar and his wife Sarah are have their own UX/UI web development business and two dependent children. In 2018 they filed a joint tax return and elected to take the standard deduction since they didn't keep good enough records to support itemizing their deductions. Omar and Sarah would be eligible to take the $24,000 standard deduction for Married Filing Jointly taxpayers. This deduction is claimed on Omar and Sarah's 1040, not their business tax return.

TASKER

John is single tasker in his mid forties who operates his own cleaning and repair business. When John isn't tasking, he cares for his disabled brother, who lived with him for more than half the year in a home which John paid for. When John files his 2018 tax return, if he chooses not to itemize his deductions since he is considered to be the head of his household, he could take a standard deduction of $18,000.

LANDLORD

Kenny is 31 years old, single, and owns a rental property which he rents full time on a long term basis. Last year Kenny paid $14,000 in Mortgage interest and private mortgage insurance for his rental property. If Kenny incurred these costs for his personal home, it would likely be favorable for him to itemize his deductions ($14,000 Schedule A deductions > $12,000 standard deduction), however, since Kenny's property is a full time rental he can deduct the $14,000 of expenses on his Schedule E and take the $12,000 standard deduction against his income on Form 1040.


WHAT YOU NEED TO KNOW

  • You should calculate what your itemized deductions total and compare against your standard deduction amount to determine which method will be most favorable for you. You cannot itemize and take the standard deduction, you must choose one method. Note that you will not be allowed to take the standard deduction if you changed our accounting period and are filing a return for a short tax year, are married filing separately and your partner itemized their deductions, or during the year you were a nonresident or dual status alien.
  • There may be certain circumstances where it is favorable to itemize your deductions even if the total itemized deductions are less than the standard deduction. You should consult with your tax advisor to determine if this could be applicable for you.
  • The standard deduction is higher for those 65 and older and for individuals who are blind.
  • Remember that the IRS updates the standard deduction amounts each year. Additionally, your potential itemized deductions, marital status and number of dependents you can claim may change between tax years, so don't simply assume you should do the same thing each year when it comes to the standard deduction.

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