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Chapter 20. Standard Deduction Important Changes for 1992 Increase in standard deduction. The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is higher in 1992 than it was in 1991. The amount depends upon your filing status. Itemized deductions. The amount you may deduct for itemized deductions is limited if your adjusted gross income is more than $105,250 ($52,625 if you are married filing separately). See Chapter 21 for more information. Introduction This chapter discusses: ∙ Who can take the standard deduction ∙ How to figure the amount of your standard deduction ∙ What additional amounts there are for age or blindness ∙ How to claim the standard deduction on your return ∙ What different rules apply to dependents ∙ Whether to take the standard deduction or to itemize your 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, or taxes, on Schedule A of Form 1040. If you have a choice, you should use the method that gives you the lower tax. Figuring the Amount Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. Persons not eligible for the standard deduction. Your standard deduction is zero and you should itemize any deductions you have if: 1) You are married and filing a separate return, and your spouse itemizes deductions, 2) You are filing a tax return with a short tax year, or 3) You are a nonresident or dual-status alien during the year. You are considered a dual-status alien if you were both a nonresident alien and a 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 1992, you can choose to be treated as a U.S. resident for 1992. (See Publication 519.) You may take the standard deduction that applies to you. Dependents may have a limited standard deduction. If you can be claimed as a dependent on another person's return (such as your parents' return), your standard deduction may be limited. See Standard Deduction for Dependents, later. You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. The standard deduction amounts for most taxpayers are shown on the Standard Deduction Chart For Most People in this chapter. 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 may take a higher standard deduction for 1992 if your 65th birthday was on or before January 1, 1993. See the Standard Deduction Chart For People Age 65 Or Older Or Blind in this chapter to figure the standard deduction amount you are entitled to. 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 the Standard Deduction Chart For People Age 65 Or Older Or Blind. You qualify for this benefit if you are totally or partly blind. Totally blind. If you are totally blind, attach a statement to this effect to your return. Partly blind. If you are partly blind, you must submit with your return each year a certified statement from an eye physician or registered optometrist that: 1) You cannot see better than 20/200 in the better eye with glasses or contact lenses, or 2) Your field of vision is not more than 20 degrees. If your eye condition will never improve beyond these limits, you can avoid having to get a new certified statement each year by having the examining eye physician include this fact in the certification you attach to your return. In later years just attach a statement referring to the certification. You should keep a copy of the certification 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 may take the higher standard deduction for blindness if you otherwise qualify. Spouse 65 or older or blind. You may take the higher standard deduction if your spouse is age 65 or older or blind and: 1) You file a joint return, or 2) You file a separate return, and your spouse had no gross income and could not be claimed as a dependent by another taxpayer. Note. You may not claim the higher standard deduction for an individual, other than your spouse, for whom you can claim an exemption. Example 1. Larry, 45, and Donna, 42, are filing a joint return for 1992. Neither is blind. They decide not to itemize their deductions. Their standard deduction is $6,000. Example 2. Assume the same facts as in Example 1, except that Larry is blind at the end of 1992. Larry and Donna's standard deduction is $6,700. Example 3. Bill and Terry are filing a joint return for 1992. Both are over age 65. Neither is blind. If they do not itemize deductions, their standard deduction is $7,400. How to report. After you find your standard deduction amount, enter it on line 19 of Form 1040A or line 34 of Form 1040. If you use Form 1040EZ, combine your standard deduction with your personal exemption and enter it on line 4. If the total of your standard deduction and personal exemption is more than $5,900, you must file Form 1040A or Form 1040. Caution. If you are married filing 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 65 or older or blind. 1992 STANDARD DEDUCTION CHART FOR MOST PEOPLE DO NOT use this chart if you were 65 or older or blind, OR if someone can claim you as a dependent. Your standard If your Filing Status is: deduction is: Single ........................................ $3,600 Married filing joint return or Qualifying widow(er) with dependent child ................ $6,000 Married filing separate return ................ $3,000 Head of household ............................. $5,250 1992 STANDARD DEDUCTION CHART FOR PEOPLE AGE 65 OR OLDER OR BLIND If someone can claim you as a dependent, use the worksheet below, instead. If you were 65 or older or blind, check the correct number of boxes below. Then go to the chart. You 65 or older ____ Blind ____ Your spouse, if claiming spouse's exemption 65 or older ____ Blind ____ Total number of boxes you checked .............. ____ If your Filing Status is: and the number in Your standard the box above is: deduction is: Single 1 ..................... $4,500 2 ..................... 5,400 Married filing joint 1 ..................... $6,700 return or Qualifying 2 ..................... 7,400 widow(er) with dependent 3 ..................... 8,100 child 4 ..................... 8,800 Married filing separate 1 ..................... $3,700 return 2 ..................... 4,400 3 ..................... 5,100 4 ..................... 5,800 Head of household 1 ..................... $6,150 2 ..................... 7,050 STANDARD DEDUCTION WORKSHEET FOR DEPENDENTS Use this worksheet ONLY if someone can claim you as a dependent (Keep for your records) If you were 65 or older or blind, check the correct number of boxes below. Then go to the chart. You 65 or older ____ Blind ____ Your spouse, if claiming spouse's exemption 65 or older ____ Blind ____ Total number of boxes you checked ............ ____ 1.Enter your earned income (if none, enter 0) .... 1.__________ 2.Minimum amount ................................. 2. $600 __________ 3.Compare the amounts on lines 1 and 2. Enter the larger of the two amounts ............ 3.__________ 4.Enter the amount shown below for your filing status. Single, enter $3,600 Married filing separate return, enter $3,000 Married filing jointly or Qualifying widow(er) with dependent child, enter $6,000 ........ 4.__________ Head of household, enter $5,250 5.Standard deduction. a. Compare the amounts on lines 3 and 4. Enter the smaller of the two amounts. If under 65 and not blind, stop here. This amount is your standard deduction. Otherwise, go on to line 5b ....... 5a.__________ b. If 65 or older or blind, multiply $900 ($700 if married filing a joint or separate return, or qualifying widow(er) with dependent child) by the total number of boxes you checked above. Enter the result ............................. 5b.__________ c. Add lines 5a and 5b. Enter the total. This is your standard deduction .............. 5c.__________ Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of (a) $600, or (b) the individual's earned income for the year (but not more than the regular standard deduction amount, generally $3,600). However, if you are a dependent who is 65 or older or blind, your standard deduction may be higher. If you are a dependent, use the Standard Deduction Worksheet For Dependents in this chapter to determine your standard deduction. Earned income is salaries, wages, professional fees, and other amounts received as pay for work you actually perform. Earned income 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. After you find your standard deduction amount, enter it on line 19 of Form 1040A or line 34 of Form 1040. If you use Form 1040EZ, figure your standard deduction on the back of the form and enter it on line 4. If your standard deduction is more than $3,600, you must file Form 1040A or Form 1040. Example 1. Michael, who is single, is claimed as a dependent on his parents' 1992 tax return. He has interest income of $700 and wages of $150. He has no itemized deductions. Michael uses the Standard Deduction Worksheet For Dependents to find his standard deduction. It is $600 because the greater of $600 or his earned income ($150) is $600. Example 2. Joe, a 22-year-old full-time college student, is claimed as a dependent on his parents' 1992 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 $3,100. He has no itemized deductions. Joe finds his standard deduction by using the Standard Deduction Worksheet For Dependents. He enters his earned income, $3,100, on line 1. On line 3 he enters $3,100, the larger of his earned income ($3,100) or $600. Since Joe is married filing a separate return, he enters $3,000 on line 4. On line 5a he enters $3,000 as his standard deduction because it is smaller than $3,100, his earned income. Example 3. Amy, who is single, is claimed as a dependent on her parents' 1992 tax return. She is 18 years old and blind. She has interest income of $950 and wages of $3,000. She has no itemized deductions. Amy uses the Standard Deduction Worksheet For Dependents to find her standard deduction. She enters her wages of $3,000 on line 1. On line 3 she enters $3,000, the larger of her wages on line 1 and the $600 on line 2. Since she is single, Amy enters $3,600 on line 4. She enters $3,000 on line 5a. This is the smaller of the amounts on lines 3 and 4. Because she checked one box in the top part of the worksheet, she enters $900 on line 5b. She then adds the amounts on lines 5a and 5b and enters her standard deduction of $3,900 on line 5c. Who Should Itemize Some taxpayers should itemize their deductions because it will save them money. Others should itemize because they do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction. Persons who should itemize deductions. If the total of your itemized deductions is more than the standard deduction to which you otherwise would be entitled, you should itemize your deductions. 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 $105,250 ($52,625 if you are married filing separately). See Chapter 21 and the instructions for Schedule A (Form 1040), line 26, 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 of Form 1040 if you: 1) Do not qualify for the standard deduction, or the amount you can claim is limited, 2) Had large uninsured medical and dental expenses during the year, 3) Paid interest and taxes on your home, 4) Had large unreimbursed employee business expenses or other miscellaneous deductions, 5) Had large casualty or theft losses not covered by insurance, 6) Had large moving expenses, 7) Made large contributions to qualified charities, or 8) Have total itemized deductions that are more than the highest standard deduction to which you otherwise are entitled. These deductions are explained in Chapters 22-30. If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. Enter the amount from Schedule A, line 26, on Form 1040, line 34. Itemizing for state tax purposes. If you itemize even though your itemized deductions are less than the amount of your standard deduction, write "IE" (itemized elected) on the dotted line to the left of line 34 (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 may 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. If you are married and filed separate returns, you may 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 lowest total tax, even though one of you may pay more tax than the other. 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).