Part Five - Standard Deduction and Itemized Deductions
After you have figured your adjusted gross income, you are ready to subtract the
deductions used to figure taxable income. You can subtract either the standard deduction
or itemized deductions. Itemized deductions are deductions for certain expenses that are
listed on Schedule A (Form 1040). The ten chapters in this part discuss the standard
deduction, each itemized deduction, and the limit on some of your itemized deductions if
your adjusted gross income exceeds certain amounts. See chapter 21 for the factors to
consider when deciding whether to subtract the standard deduction or itemized deductions.
21. Standard Deduction
Important Changes
Increase in standard deduction. The standard deduction for taxpayers
who do not itemize deductions on Schedule A of Form 1040 is higher in 2002 than it was in
2001. The amount depends on your filing status. 2002 Standard Deduction Tables are
shown at the end of this chapter.
Itemized deductions. The amount you can deduct for itemized
deductions is limited if your adjusted gross income is more than $137,300 ($68,650 if you
are married filing separately). See chapter 22 for more information.
Introduction
This chapter discusses:
- How to figure the amount of your standard deduction,
- The standard deduction for dependents, and
- Who should itemize deductions.
Most taxpayers have a choice of either taking a standard deduction or itemizing their
deductions. The standard deduction is a dollar amount that reduces the amount of income on
which you are taxed.
The standard deduction is a benefit that eliminates the need for many taxpayers to
itemize actual deductions, such as medical expenses, charitable contributions, and taxes,
on Schedule A of Form 1040. The standard deduction is higher for taxpayers who are 65 or
older or blind. If you have a choice, you should use the method that gives you the lower
tax.
 You benefit from
the standard deduction if your standard deduction is more than the total of your allowable
itemized deductions.
Persons not eligible for the standard deduction.
Your standard deduction is zero and you should itemize
any deductions you have if:
- You are married and filing a separate return, and your spouse itemizes deductions,
- You are filing a tax return for a short tax year because of a change in your annual
accounting period, or
- You are a nonresident or dual-status alien during the year. You are considered a
dual-status alien if you were both a nonresident and resident alien during the year.
Note.
If you are a nonresident alien who is married to a U.S. citizen or resident at the end
of the year, you can choose to be treated as a U.S. resident. (See Publication 519, U.S.
Tax Guide for Aliens.) If you make this choice, you can take the standard deduction.
 If an
exemption for you can be claimed on another person's return (such as your parents'
return), your standard deduction may be limited. See Standard Deduction for Dependents,
later.
Standard Deduction Amount
The standard deduction amount depends on your filing status, whether you are 65 or
older or blind, and whether an exemption can be claimed for you by another taxpayer.
Generally, the standard deduction amounts are adjusted each year for inflation. The
standard deduction amounts for most taxpayers for 2002 are shown in Table 21-1.
Decedent's final return. The amount of the standard deduction for a
decedent's final return is the same as it would have been had the decedent continued to
live. However, if the decedent was not 65 or older at the time of death, the higher
standard deduction for age cannot be claimed.
Higher Standard Deduction for Age (65 or Older)
If you do not itemize deductions, you are entitled to a higher
standard deduction if you are age 65 or older at the end of the year. You are
considered 65 on the day before your 65th birthday. Therefore, you can take a higher
standard deduction for 2002 if your 65th birthday was on or before January 1, 2003.
Use Table 21-2 to figure the standard deduction amount.
Higher Standard Deduction for Blindness
If you are blind on the last day of the year and you do not itemize
deductions, you are entitled to a higher standard deduction as shown in Table
21-2. You qualify for this benefit if you are totally or partly blind.
Partly blind. If you are partly blind, you must get a certified
statement from an eye doctor or registered optometrist that:
- You cannot see better than 20/200 in the better eye with glasses or contact lenses, or
- Your field of vision is not more than 20 degrees.
If your eye condition will never improve beyond these limits, the statement should
include this fact. You must keep the statement in your records.
If your vision can be corrected beyond these limits only by contact lenses that you can
wear only briefly because of pain, infection, or ulcers, you can take the higher standard
deduction for blindness if you otherwise qualify.
Spouse 65 or Older or Blind
You can take the higher standard deduction if your spouse is age 65
or older or blind and:
- You file a joint return, or
- You file a separate return and can claim an exemption for your spouse because your
spouse had no gross income and an exemption for your spouse could not be claimed by
another taxpayer.
You cannot
claim the higher standard deduction for an individual other than yourself and your spouse.
Examples
The following examples illustrate how to determine your standard deduction using Tables
21-1 and 21-2.
Example 1. Larry, 46, and Donna, 33, are filing a joint return
for 2002. Neither is blind. They decide not to itemize their deductions. They use Table
21-1. Their standard deduction is $7,850.
Example 2. Assume the same facts as in Example 1, except that
Larry is blind at the end of 2002. Larry and Donna use Table 21-2. Their standard
deduction is $8,750.
Example 3. Bill and Terry are filing a joint return for 2002.
Both are over age 65. Neither is blind. If they do not itemize deductions, they use Table
21-2. Their standard deduction is $9,650.
Standard Deduction
for Dependents
The standard deduction for an individual for whom an exemption can be
claimed on another person's tax return is generally limited to the greater of:
- $750, or
- The individual's earned income for the year plus $250 (but not more than the regular
standard deduction amount, generally $4,700).
However, if the individual is 65 or older or blind, the standard deduction may be
higher.
If an exemption for you (or your spouse if you are filing jointly) can be claimed on
someone else's return, use Table 21-3 to determine your standard deduction.
Earned income defined. Earned income is salaries, wages, tips, professional fees, and other amounts
received as pay for work you actually perform.
For purposes of the standard deduction, earned income also includes any part of a scholarship
or fellowship grant that you must include in your gross income. See Scholarship
and Fellowship Grants in chapter 13 for more information on what qualifies as a
scholarship or fellowship grant.
Example 1. Michael is single. His parents claim an exemption for
him on their 2002 tax return. He has interest income of $780 and wages of $150. He has no
itemized deductions. Michael uses Table 21-3 to find his standard deduction. He
enters $150 (his earned income) on line 1, $400 ($150 plus $250) on line 3, $750 (the
larger of $400 and $750) on line 5, and $4,700 on line 6. The amount of his standard
deduction, on line 7a, is $750 (the smaller of $750 and $4,700).
Example 2. Joe, a 22-year-old full-time college student, is
claimed on his parents' 2002 tax return. Joe is married and files a separate return. His
wife does not itemize deductions on her separate return.
Joe has $1,500 in interest income and wages of $3,800. He has no itemized deductions.
Joe finds his standard deduction by using Table 21-3. He enters his earned
income, $3,800, on line 1. He adds lines 1 and 2 and enters $4,050 on line 3. On line 5 he
enters $4,050, the larger of lines 3 and 4. Since Joe is married filing a separate return,
he enters $3,925 on line 6. On line 7a he enters $3,925 as his standard deduction because
it is smaller than $4,050, the amount on line 5.
Example 3. Amy, who is single, is claimed on her parents' 2002
tax return. She is 18 years old and blind. She has interest income of $1,300 and wages of
$2,900. She has no itemized deductions. Amy uses Table 21-3 to find her standard
deduction. She enters her wages of $2,900 on line 1. She adds lines 1 and 2 and enters
$3,150 on line 3. On line 5 she enters $3,150, the larger of lines 3 and 4. Since she is
single, Amy enters $4,700 on line 6. She enters $3,150 on line 7a. This is the smaller of
the amounts on lines 5 and 6. Because she checked one box in the top part of the
worksheet, she enters $1,150 on line 7b. She then adds the amounts on lines 7a and 7b and
enters her standard deduction of $4,300 on line 7c.
Who Should Itemize
You should itemize deductions if your total deductions are more than
the standard deduction amount. Also, you should itemize if you do not qualify for
the standard deduction, as discussed earlier under Persons not eligible for the
standard deduction.
You should first figure your itemized deductions and compare that amount to your
standard deduction to make sure you are using the method that gives you the greater
benefit.
You may be
subject to a limit on some of your itemized deductions if your adjusted gross income (AGI)
is more than $137,300 ($68,650 if you are married filing separately). See chapter 22 and
the instructions for Schedule A (Form 1040), line 28, for more information on figuring the
correct amount of your itemized deductions.
When to itemize. You may benefit from itemizing your
deductions on Schedule A (Form 1040) if you:
- Do not qualify for the standard deduction, or the amount you can claim is limited,
- Had large uninsured medical and dental expenses during the year,
- Paid interest and taxes on your home,
- Had large unreimbursed employee business expenses or other miscellaneous deductions,
- Had large uninsured casualty or theft losses,
- Made large contributions to qualified charities, or
- Have total itemized deductions that are more than the standard deduction to which you
otherwise are entitled.
These deductions are explained in chapters 23-30.
If you decide to itemize your deductions, complete Schedule A and attach it to your
Form 1040. Enter the amount from Schedule A, line 28, on Form 1040, line 38.
Itemizing for state tax or other purposes. If you choose to itemize
even though your itemized deductions are less than the amount of your standard deduction,
write IE (itemized elected) next to line 38 (Form 1040).
Tables 21-1,2,3. Standard Deduction Charts and WorksheetStandard deduction:
Tables
Changing your mind. If you do
not itemize your deductions and later find that you should have itemized - or if you
itemize your deductions and later find you should not have - you can change your
return by filing Form 1040X, Amended U.S. Individual Income Tax Return. See Amended
Returns and Claims for Refund in chapter 1 for more information on amended returns.
Married persons who filed separate returns. You can change
methods of taking deductions only if you and your spouse both make the same changes. Both
of you must file a consent to assessment for any additional tax either one may owe as a
result of the change.
You and your spouse can use the method that gives you the lower total tax, even though
one of you may pay more tax than you would have paid by using the other method. You both
must use the same method of claiming deductions. If one itemizes deductions, the other
should itemize because he or she will not qualify for the standard deduction. (See Persons
not eligible for the standard deduction, earlier.)
- Continue - |
