Tax Deductions and Exemptions

By Business & Finance Last updated Saturday, May/25/2024

Standard Deduction

In the United States, a tax payer can claim the standard deduction when she files or choose to itemize. The standard deduction is a number that varies each year, depending on inflation. A taxpayer subtracts the deduction from her adjusted gross income, further reducing the amount of her taxable income. The deduction also varies based on a person's filing status, whether she is single, head-of-household, married filing jointly or separately. In 2010, the standard deduction for a single person or a married couple filing separately was $5,700. It was $11,400 for a married couple filing jointly and $8,400 for head-of-household.

In some cases, you may be able to shave even more money off your tax bill by itemizing your deductions. If you're married filing separately and your spouse itemizes, you must itemize as well. You can deduct state or local income or sales tax in your itemized deductions, as well as mortgage interest, charitable donations made, either in cash or in kind and certain medical and dental expenses. To itemize your deductions, you need to complete Schedule A as part of the 1040.

If you are single and no one else claims you as a dependent, you can claim yourself as one exemption. If you're married and filing jointly, your spouse is another exemption. A spouse who files separately can only be claimed as an exemption on your return if she has no income for the year and isn't filing her own return. Any children you have and who live with you may be claimed as exemptions as well. The child must be under age 19 or under 24 if a student. If your child is permanently disabled, you can claim him as a dependent no matter his age. In 2010, you can subtract $3,650 for each exemption.

There are a number of "above the line" deductions that you may be able to claim. Above the line deductions lower the amount of your adjusted gross income and are not part of itemized deductions, so you can claim them even if you only take the standard deduction. For example, teachers can claim the cost of classroom supplies and other expenses as a deduction. Students repaying eligible loans can deduct any interest paid, up to $2,500. If you are self employed and have health insurance, you can deduct your premiums above the line and on Schedule SE for self-employment tax.