What happens if your gross income is less than the standard deduction?
The deductions you claim on your tax return determine how much of your income is taxable. So, if your income is less than the standard deduction, and you don't have other income to report, you won't need to file a tax return.
If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund. You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year.
If you freelance, do gig work, or run a small business, you'll always have to pay self-employment tax on your 1099 income — even if it's much less than the standard deduction.
You cannot take the standard deduction if: You are a married individual filing as married filing separately whose spouse itemizes deductions. You are an individual who files a tax return for a period of less than 12 months because of a change in your annual accounting period.
Itemized deductions (and the standard deduction) are dollar amounts that are deducted from your AGI. Your gross income is the total amount of money you earn during a tax year, including salaries, wages, tips, self-employment income, and investment income among others.
Taking the standard deduction might be easier, but if your total itemized deductions are greater than the standard deduction available for your filing status, saving receipts and tallying those expenses can result in a lower tax bill.
It ensures that only households with income above certain thresholds will owe any income tax. Taxpayers can claim a standard deduction when filing their tax returns, thereby reducing their taxable income and the taxes they owe.
In many cases, if you don't earn more than the Standard Deduction you won't have to file income taxes. For example, if the Standard Deduction is $12, 950, and you earn less than $12,950, then you might not need to file your income tax return. See the next point for further clarification.
If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040 or 1040-SR. But in some situations your loss is limited. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C), for more information.
- Home office expenses.
- Rent or lease payments.
- Business-related travel, meals and entertainment.
- Commissions and fees.
- Advertising and promotion.
- Business Insurance.
- Business licenses.
- Contract labor.
Is it better to itemize or take standard deduction?
If your standard deduction is less than your itemized deductions, you should consider itemizing to save money. If your standard deduction is more than your itemized deductions, it might be worth it to take the standard and save some time.
Here are the disadvantages of itemized deductions: Unlike standard deductions, itemizing is a manual process that requires gathering documentation and tallying expenses.
One of the greatest changes brought about by the Tax Cuts and Jobs Act (TCJA) is the elimination of many personal itemized deductions. Starting in 2018 and continuing through 2025, taxpayers will not be able to deduct expenses such as union dues, investment fees, or hobby expenses.
Taxable income – Taxable income is arrived at by subtracting the standard or itemized deductions—whichever amount is greater—from your AGI.
Deductible expenses
You can deduct these expenses whether you take the standard deduction or itemize: Alimony payments. Business use of your car. Business use of your home.
Tax brackets and marginal tax rates are based on taxable income, not gross income.
In the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income.
| 2023 and 2024 Standard Deduction | ||
|---|---|---|
| Filing Status | 2023 Standard Deduction | 2024 Standard Deduction |
| Single | $13,850 | $14,600 |
| Married Filing Joint | $27,700 | $29,200 |
| Head of Household | $20,800 | $21,900 |
Tax credits, tax deductions, and itemized income tax returns are ways you may be able to reduce your taxable income or increase your income tax refund.
The standard deduction: Allows you to take a tax deduction even if you have no expenses that qualify for claiming itemized deductions. Eliminates the need for itemizing deductions. Allows you to avoid keeping records and receipts of your expenses in case of a tax audit.
Does the standard deduction reduce your tax liability?
It's what most people claim when they file their taxes and often provides the greatest tax savings. This deduction allows you to reduce your taxable income by anywhere from $13,850 to $27,700 in 2023, helping you reduce your tax liability.
If you qualify for tax credits, such as the Earned Income Tax Credit or Additional Child Tax Credit, you can receive a refund even if your tax is $0. To claim the credits, you have to file your 1040 and other tax forms.
If you earn less than $10,000 per year, you don't have to file a tax return. However, you won't receive an Earned-Income Tax Credit refund unless you do file.
It is possible to claim zero on your tax return and still owe taxes for a number of reasons. One reason could be if you did not have enough taxes withheld from your paychecks throughout the year.
The IRS may have more opportunities to dig deeper into your taxes when you itemize on your return. As long as you claim legitimate, reasonable deductions, there's no reason to fear an audit.
