In the United States, taxable income is gross income minus certain authorized adjustments, namely personal exemptions and other deductions. The deductions applied to derive adjusted gross income (AGI), are all “above the line” modifications, meaning they are subtracted first from your total income before calculating your tax due. Since these above the line deductions are subtracted from your total taxable income, they have the effect of reducing your overall “tax burden.”
The IRS allows two ways you can make your deductions: you can either itemize the deductions by filling up Schedule A of your 1040 Form, or you can use the “standard deduction.” The standard deduction is a dollar amount that reduces the amount of income on which you are taxed, consisting of the “basic standard deduction” plus any additional standard deductions for age and/or blindness. It is generally adjusted each year for inflation and varies according to your filing status, whether you are 65 or older and/or blind, and whether another taxpayer can claim you as a dependent. For instance, the basic standard deduction for a taxpayer who is single is $6,300, while it’s $12,600 for one who’s married filing jointly, it’s also $6,300 for one who’s married filing separately, it’s $9,250 for one who’s filing as a head of household, and it’s $12,600 for one who’s filing as a qualifying surviving spouse.
If at the end of the tax year you are age 65 or older, or your spouse is 65 years or older, or you are blind, or your spouse is blind, you are entitled to add $1,100 to your standard deductions for each applicable condition. For example, if you are age 65 and blind, you would be entitled to a basic standard deduction and an additional standard deduction equal to the sum of the additional amounts for both age and blindness. On the other hand, if you can be claimed as a dependent by another taxpayer, your standard deduction for 2015 is limited to whichever is greater: $1,050, or your earned income plus $350, but in no case can the total be more than the basic standard deduction for your filing status.
Not every taxpayer can avail of standard deductions. Among them are married individuals filing as “married filing separately” whose spouse itemizes deductions, those filing a return for a period of less than 12 months due to a change in his or her annual accounting period, and estates or trusts, common trust funds, or partnerships. Also not entitled to use the standard deduction option are nonresident aliens or dual status aliens during any part of the year, subject to certain exeptions as when he or she is married to a U.S. citizen or resident alien at the end of the tax year and makes a joint election with his or her spouse to be treated as a U.S. resident for the entire tax year.