The goal of tax planning is to pay as little as you can to Uncle Sam. Unfortunately, some tax planning is complicated and expensive to implement, and it doesn't make sense to spend huge amounts of time and money if the tax savings you'll get from your efforts isn't all that big.
One way lawmakers acknowledge that trade-off is by giving taxpayers a standard deduction. The popular tax provision keeps people from having to keep track of all the expenses that they'd be eligible to deduct as itemized deductions over the course of the year. But it's also big enough that it's actually the best choice for most people. That's a big part of why the vast majority of taxpayers claim the standard deduction rather than itemizing.
Big changes came to the standard deduction in 2018 as a result of tax reform, but increases haven't been as big since then. 2020's boost won't produce huge amounts of additional savings, but it'll still be an incremental benefit to tens of millions of taxpayers as they consider their tax planning.
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2020's increases to the standard deduction
Every year, inflation adjustments lift the amount that taxpayers are eligible to take as standard deductions. Here are the adjustments for 2020:
|
Filing Status |
Standard Deduction for 2020 Tax Year |
Change From 2019 |
|---|---|---|
|
Single |
$12,400 |
+$200 |
|
Married filing jointly |
$24,800 |
+$400 |
|
Head of household |
$18,650 |
+$300 |
|
Married filing separately |
$12,400 |
+$200 |
Data source: IRS.
Those increases are the same as they were in 2019 with one exception. The head of household standard deduction rose by $350 in 2019, making 2020's boost a bit smaller.
Some taxpayers get extra amounts as part of their standard deductions. If you're blind, or if you're 65 or older, then you can add $1,300 to your standard deduction if you're married or $1,650 if you're single. Those numbers are the same as they were in 2019. Those who are both 65 and older and blind are eligible for a double-sized boost to their standard deductions. Both members of a couple who files jointly can claim the additions as well.
Smaller standard deductions apply to those who can get claimed as a dependent. The base $1,100 standard deduction is the same as in 2019, as is the higher amount of $350 plus any earned income you receive up to the regular standard deduction maximum.
More people are taking the standard deduction
There's a significant lag between the time people file their tax returns and when the IRS makes aggregate statistics available from those tax years. As a result, we don't know exactly what the breakdown was for itemizing versus taking the standard deduction in the 2018 tax year. However, tax experts expected that the number of taxpayers itemizing their deductions would fall by more than 60% as a result of the big increase in the standard deduction and other changes to tax laws that took effect in 2018.
Subsequent increases in the standard deduction have been smaller and were designed simply to keep up with inflation, so they're less likely to have a big impact on how many people itemize. Nevertheless, if those projections prove correct, those using the standard deduction could approach 90% of all taxpayers.
Be smart about the standard deduction
There are plenty of people who can still benefit by choosing not to take the standard deduction and itemizing instead. Yet it's still the case that itemizing takes extra work. With a higher standard deduction, more people will find that they're better off not worrying about itemizing -- or that the possible tax savings from tracking those itemized deductions over the course of the year simply isn't worth the effort.
