Discover what are standard deductions with Greg McGraime, a certified financial planner.
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The standard deduction is really valuable to a lot of individuals when they're filing their taxes, and about two-thirds of the country claims the standard deduction and let me explain kind of what that means. A deduction in general allows you to subtract money from your taxable income and lower how much money is due. The challenge is, a lot of people don't have a lot of deductible expenses. And so you have a choice as a tax payer. You can take a standard deduction, which is a set amount the IRS allows you to subtract from your taxable income, or you can itemize your taxes and deduct things like charitable contributions or mortgage interest. But for a lot of individuals that don't have that, the standard deduction allows you to lower your taxable income without having to worry about all those other rules or whether or not you have those other expenses. So for example, if I make $50,000 a year and the standard deduction was $10,000, my taxable income is reduced from $50,000 to $40,000 and I'm paying tax on a much smaller amount. Really important to take advantage of. Make sure you assess whether or not it's better for you to take the standard deduction or to itemize your deductions, because the IRS allows you to do whatever provides the bigger tax benefit to you.