Standard Deduction

Taxpayers who don't pay enough deductible expenses during the year to itemize can always claim the standard deduction. This amount is determined by the federal government each year and generally increases for inflation. However, the standard deduction is different depending on your filing status. For example, if you file as head of household, your standard deduction is larger than for a single taxpayer. This is because filing as head of household means that you support at least one dependent; whereas, a single taxpayer has no dependents.

Itemized Deductions

If the total of your annual expenses that are eligible for a deduction exceed the standard deduction amount, it's to your benefit to itemize deductions on the Schedule A attachment to your tax return. Claiming your itemized deductions results in a larger deduction and, in general, requires you to pay less income tax. When determining whether you can itemize, you should reference the instructions to the Schedule A to familiarize yourself with the types of expenses that are deductible. Although many exist, common deductions include mortgage interest, property taxes, charitable contributions and unreimbursed work-related expenses. When itemizing, the amount of expenses you pay during the year directly relates to how much you can deduct on your tax return.

Non-Itemized Deductions

Many deductions are available to all taxpayers regardless of whether they itemize or claim the standard deduction. If you qualify to claim any of these expenses, it is in addition to your standard or itemized deductions. Common examples include the payment of alimony, student loan interest or tuition, contributions to certain retirement accounts and self-employment taxes you pay during the year. Each of these deductions has their own rules and requirements you must satisfy. For example, there is no limit on the amount of alimony you can deduct in a year; however, there is a maximum deduction you can claim for contributions you make to a retirement account.

Exemptions

An exemption works the same way as a deduction in that it reduces the amount of your income subject to tax. If you are not the dependent of another taxpayer, you can generally claim one exemption for yourself and for each dependent you report on the tax return. The IRS provides a standard exemption amount you can claim for each dependent. Claiming a dependent has certain requirements, but generally, you can only claim an exemption if the person lives with you and you provide more than half of his financial support.