Here is some basic information about how the standard deduction works for taxpayers:
Basic Information about Claiming the Standard Deduction on Tax Return
There is a very simple formula: Income – Adjusted Gross Income Deductions (alimony payments, IRA contributions, Self-Employed Health Insurance deduction, student loan interest deduction) = Adjusted Gross Income – Greater of Standard ($6,100 for individuals) or Itemized Deduction – Personal Exemption ($3,900 per exemption) = Taxable Income * Tax Rate = Tax Liability – Credits – Withholding/Estimated Payments = Tax Due/Refund Due.
It is a very specific calculation and its really not some magic number that turbo tax spits out.
How does Standard Deduction Work?
For many, or even most people, filling a tax return should look like this:
- Put your total income onto a line (copy from a field on W-2).
- Put your number of dependents onto a line – yourself, spouse, and each kid all count for one.
- Subtract a fixed number (deductible), and then #2 times another number (exemptions) from #1.
- Look up in the table to find the tax for #3, and put that onto a line.
- Put the tax paid onto a line, copying that from W-2.
- Compare #4 with #5, and enter the difference on another line.
What about Itemized Deductions?
Here is information on itemized deductions. Itemized deductions are grouped into five main categories: 1) Medical, 2) Taxes, 3) Charity, 4) Interest, 5) Miscellaneous. Except for the phaseout (I’ll explain that if you want, or you can read about it, called “Pease”), you’ll get a deduction for whatever you have for taxes, charity, and interest. For medical and miscellaneous, your deductions have to be over a percentage of your income to receive any benefit. For example, if your income is $100,000, you have to have $2,001 of tax preparation fees (or the sum of all your other miscellaneous itemized deductions) to receive $1 of deduction for that.