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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. It 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 can use the method that gives you the lower tax.
Standard Deduction
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Itemized Deduction
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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 2004 are shown in Table 5.
The amount of the standard deduction for a decedent's final tax 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 2004 if you were born before January 2, 1940.
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. Use Table 6. You qualify for this benefit if you are totally or partly blind.
2004 Standard Deduction Tables
If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim a personal exemption on his or her own tax return.
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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:
- $800, or
- The individual's earned income for the year plus $250 (but not more than the regular standard deduction amount, generally $4,850).
However, if the individual is 65 or older or blind, the standard deduction may be higher.
Itemized Deduction
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.
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.
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 39.
Electing to itemize for state tax or other purposes
Even if your itemized deductions are less than the amount of your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. You may want to do this, for example, if the tax benefit of being able to itemize your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. To make this election, you must enter “IE” (itemized elected) on the dotted line next to line 39 (Form 1040).
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.
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