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.
Above the Line Deductions
Here is information on above the line deductions. These are all over the place, but the ones most people will use will be the retirement contribution deduction and student loan interest.