20.   Standard Deduction

Table of Contents

    * What's New
    * Introduction
    * Standard Deduction Amount
          o
    * Standard Deduction for Dependents
          o Earned income defined.
    * Who Should Itemize
          o When to itemize.
          o Married persons who filed separate returns.
          o 2005 Standard Deduction Tables

What's New

Increase in standard deduction. The standard deduction for most taxpayers
who do not itemize deductions on Schedule A of Form 1040 is higher in 2005
than it was in 2004. The amount depends on your filing status. There are
tables at the end of this chapter to help you figure your standard
deduction for 2005.
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.

Tip
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.

Caution
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 2005 are shown in Table 20-1.
Decedent's final return.   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 2005 if you were born before January 2, 1941.

Use Table 20-2 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 20-2. 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.

Caution
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 20-1 and 20-2.

Example 1.

Larry, 46, and Donna, 33, are filing a joint return for 2005. Neither is
blind. They decide not to itemize their deductions. They use Table 20-1.
Their standard deduction is $10,000.

Example 2.

Assume the same facts as in Example 1, except that Larry is blind at the
end of 2005. Larry and Donna use Table 20-2. Their standard deduction is
$11,000.

Example 3.

Bill, 72, and Terry, 66, are filing a joint return for 2005. Neither is
blind. They decide not to itemize their deductions. They use Table 20-2.
Their standard deduction is $12,000.
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 $5,000).

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 20-3 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 1 of
Publication 970 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 2005 tax
return. He has interest income of $780 and wages of $150. He has no
itemized deductions. Michael uses Table 20-3 to find his standard
deduction. He enters $150 (his earned income) on line 1, $400 ($150 plus
$250) on line 3, $800 (the larger of $400 and $800) on line 5, and $5,000
on line 6. The amount of his standard deduction, on line 7a, is $800 (the
smaller of $800 and $5,000).

Example 2.

Joe, a 22-year-old full-time college student, is claimed on his parents'
2005 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 20-3. 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 $5,000 on line 6.
On line 7a he enters $4,050 as his standard deduction because it is smaller
than $5,000, the amount on line 6.

Example 3.

Amy, who is single, is claimed on her parents' 2005 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 20-3 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 $5,000 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
$1,250 on line 7b. She then adds the amounts on lines 7a and 7b and enters
her standard deduction of $4,400 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.

Caution
You may be subject to a limit on some of your itemized deductions if your
adjusted gross income (AGI) is more than $145,950 ($72,975 if you are
married filing separately). See chapter 29 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 21-28.

   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 40.

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 check the
box on line 29 of Schedule A.

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.

2005 Standard Deduction Tables

caution
If you are married filling a separate return and your spouse itemizes
deductions, or if you are a dual-status alien, you cannot take the standard
deduction even if you were born before January 2, 1941, or you are blind.

IF your filing status is... 	THEN your standard deduction is...
Single or Married filing separately 	$5,000
Married filing jointly or Qualifying widow(er) with dependent child 	10,000
Head of household 	7,300

* Do not use this chart if you were born before January 2, 1941, or you are
blind, or if someone else can claim an exemption for you (or your spouse if
married filing jointly). Use Table 20-2 or 20-3 instead.

 
 

Table 20-2. Standard Deduction Chart for People Born Before January 2,
1941, or Who are Blind*
Check the correct number of boxes below. Then go to the chart.
You 	Born before January 2, 1941
check box
	
Blind
check box
  	  	 
Your spouse, if claiming spouse's exemption 	Born before January 2, 1941
check box
	
Blind
check box
  	  	 
Total number of boxes you checked
check box
IF your
filing status is... 	AND the number in the box above is... 	THEN your
standard deduction is...
Single 	1 	$6,250
  	2 	7,500
Married filing jointly or 	1 	11,000
Qualifying widow(er) 	2 	12,000
with dependent child 	3 	13,000
  	4 	14,000
Married filing 	1 	6,000
separately 	2 	7,000
  	3 	8,000
  	4 	9,000
Head of household 	1 	8,550
  	2 	9,800

* If someone can claim an exemption for you (or your spouse if married
filing jointly), use Table 20-3, instead.

    Use this worksheet only if someone else can claim an exemption for you
(or your spouse if married filing jointly).

If you were born before January 2, 1941, or you are blind, check the
correct number of boxes below. Then go to the worksheet.
You 	Born before January 2, 1941
check box
	
Blind
check box
  	  	 
Your spouse, if claiming spouse's exemption 	Born before January 2, 1941
check box
	
Blind
check box
  	  	 
Total number of boxes you checked
check box

1. 	Enter your earned income (defined below). If none, enter -0-. 	1. 	 
2. 	Additional amount 	2. 	$250
3. 	Add lines 1 and 2. 	3. 	 
4. 	Minimum standard deduction. 	4. 	$800
5. 	Enter the larger of line 3 or line 4. 	5. 	 
6. 	Enter the amount shown below for your filing status. 	  	 
  	• 	Single or Married filing separately— $5,000 	6. 	 
  	• 	Married filing jointly or Qualifying
widow(er) with dependent child—$10,000 	  	 
  	• 	Head of household—$7,300 	  	 
7. 	Standard deduction. 	  	 
  	a. 	Enter the smaller of line 5 or line 6. If born after January 1,
1941, and not blind, stop here. This is your standard deduction. Otherwise,
go on to line 7b. 	7a. 	 
	b. 	If born before January 2, 1941, or blind, multiply $1,250 ($1,000 if
married or qualifying widow(er) with dependent child) by the number in the
box above. 	7b. 	 
  	c. 	Add lines 7a and 7b. This is your standard deduction for 2005. 	7c. 	 
  	  	  	  	 

Earned income includes wages, salaries, tips, professional fees, and other
compensation received for personal services you performed. It also includes
any amount received as a scholarship that you must include in your income.