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

American taxpayers have two main options for reducing their taxable income: take the standard deduction Or itemize deductions. The standard deduction is a fixed amount that everyone is entitled to, while the itemized involves listing specific expenses such as mortgage interest or charitable donations. Taxpayers then choose the higher amount, with most taxpayers selecting the standard deduction.

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

For example, a single taxpayer earning US$40,000 per year who did not have children in tax year 2024 would be eligible for an allowance. standard deduction of $14,600. That means the taxpayer would owe taxes based on an income of $25,400, likely a bill of around $2,800.

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

Likewise, single taxpayers with one dependent, as “head of household,” can claim a larger standard deduction of $21,900. And married taxpayers choosing to file together, called “married joint returns,” can claim a standard deduction of $29,200. In each case, the standard deduction generally results in a reduced tax bill.

Why the standard deduction is important

The Tax Cuts and Jobs Act, which President-elect Donald Trump signed into law in late 2017 during his first administration, almost doubled the standard deduction starting in 2018. This change made it more beneficial 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 boxes of receipts tied to those payments. The standard deduction is also indexed to inflation, meaning it increases each year to keep pace with the rising cost of living, ensuring that taxpayers maintain the same relative level of tax benefits over time. time.

The standard deduction for single taxpayers without dependents will increase to $15,000at $22,500 for single taxpayers with dependents and $30,000 for married taxpayers filing jointly for tax year 2025. But many provisions of the 2017 tax law will expire soonincluding the sharp increase in the standard deduction, end of 2025 – unless there is legislative action.

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