Filing taxes can be daunting, but understanding your options for reducing your taxable income can help make it easier and save you money.

U.S. taxpayers have two main options for reducing their taxable income: taking the standard deduction or itemizing deductions. The standard deduction is a fixed amount that everyone qualifies for, while itemizing involves listing specific expenses such as mortgage interest or charitable donations. Taxpayers then choose the higher amount, with most taxpayers selecting the standard deduction.

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Understanding the Standard Deduction

The standard deduction is a dollar-for-dollar reduction in taxable income, lowering the amount that a taxpayer owes the Internal Revenue Service. All taxpayers with earned income, whether from a day job or side hustle, qualify to deduct a specific amount from their income before paying any taxes.

For example, a single taxpayer earning US$40,000 a year and who had no children in the 2024 tax year would qualify for a standard deduction of $14,600. This means that the taxpayer would owe taxes based on $25,400 of income, probably a bill of about $2,800.

Without the standard deduction or itemized deductions, the same taxpayer would owe $4,568, meaning the standard deduction gives the taxpayer an immediate tax savings of nearly $1,800. Notably, the taxpayer gets the savings regardless of their level of charitable giving or whether they own their residence and owe money on a mortgage.

Similarly, single taxpayers with a dependent, as a “head of household,” can claim a larger standard deduction of $21,900. And married taxpayers choosing to file together, known as “married filing jointly,” may claim a standard deduction of $29,200. In each case, the standard deduction usually results in lower tax bills.

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The Impact of Recent Tax Law Changes

The Tax Cuts and Jobs Act, which President-elect Donald Trump signed into law at the end of 2017 during his first administration, nearly doubled the standard deduction as of 2018. That change made it more advantageous for most taxpayers to take it rather than itemizing expenses.

This change simplified tax filing for millions of Americans, providing immediate tax relief by reducing their taxable income without the need to list individual deductions – or save the boxes of receipts related to those payments. The standard deduction is also indexed to inflation, meaning it increases annually to keep pace with rising costs of living, ensuring that taxpayers maintain the same relative level of tax benefit over time.

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Future Considerations for Taxpayers

The standard deduction for single taxpayers without dependents will increase to $15,000, to $22,500 for single taxpayers with dependents and to $30,000 for married taxpayers filing together for the 2025 tax year. But many features of the 2017 tax law will soon expire, including the big standard deduction increase, at the end of 2025 – unless there’s legislative action.

Before that happens, Congress will need to decide whether to extend the higher standard deduction. This decision could significantly affect how much taxpayers can save in the future, especially for those who benefit the most from a larger standard deduction.