Income Cap on Standard Deductions
The standard deduction is available to most taxpayers who aren't dependents, regardless of how much money they earn during the year. This is because there's no income cap, or phaseout, that applies to standard deductions. But if you're subject to the alternative minimum tax because you earn more than the average taxpayer, you might see your standard deduction disappear.
Standard Deduction Basics
Standard deductions are fixed dollar amounts that reduce your taxable income and are taken as an alternative to itemizing every allowable expense you have. If, however, the sum of your allowable expenses -- such as mortgage interest, state and local income and property taxes -- and job expenses is more than the standard deduction, you might save more in taxes by itemizing on Schedule A instead. This fixed dollar amount isn't the same for all taxpayers, as some filing statuses permit larger standard deductions than others, but they all increase for inflation each tax year.
Taxpayers who file as single or married filing separately always receive the smallest standard deduction, while those who use the married filing jointly and qualifying widow(er) with dependent child statuses can take the largest standard deduction. For some unmarried taxpayers who maintain a home, claim a dependent and satisfy other criteria, the head of household filing status can be used; it offers a standard deduction that's more than the amount for single filers but less than the deduction for joint filers. Despite the lack of an income cap, the standard deduction is unavailable to married taxpayers who file independently from each other when one spouse chooses to itemize on her return. In other words, if you file a separate return from your husband and he chooses to itemize, you can't take a standard deduction on your own return. Your only option is to itemize.
Higher Standard Deductions
Additional fixed amounts are added to the standard deductions of taxpayers who are at least partially blind or older than 64 years old at the end of the tax year. Someone who is both blind and 65 or older receives two separate increases. For the purpose of taking a higher standard deduction, the Internal Revenue Service considers you 65 on the day before your birthday. Therefore, if your birthday falls on Jan. 1, you're considered 65 years old on Dec. 31 -- the last day of the tax year.
Alternative Minimum Tax
It is possible to lose the standard deduction because of the amount of income you earn. The tax law imposes an alternative minimum tax, or AMT, on individuals who earn higher levels of income but are able to minimize their income tax bill with an array of deductions. To determine whether you're subject to the AMT, you need to prepare Form 6251. Form 6251 calculates your “alternative minimum taxable income” by eliminating a number of deductions and other tax benefits taken on your 1040, one of which is the standard deduction, before separate tax rates and rules are applied to increase the tax you owe.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.