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Standard and itemized tax deductions

Get a better understanding of how deductions work and which ones are right for you. Created by Sal Khan.

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  • aqualine ultimate style avatar for user Immanuel Ogendo
    Between - Sal mentions State taxes. What is the difference between State Taxes and the Tax that he is calculating currently? Also, is the act of State Taxes also carried out internationally? Also, is the standardised tax deduction something that anyone can apply for monthly or annually, or do you need to be in a specific financial situation?
    (5 votes)
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    • piceratops tree style avatar for user Maria Mejia
      The state tax he mentioned at the time was taxes paid by either you or your employer to the state you worked in. The taxes he is calculating is for the federal government.
      If you live abroad, not in the United States, you will have to check with the most recent state you lived in to see if you need to pay state taxes.
      The standard tax deduction is a calculated number that the government came up with that they think is the most basic cost of living. It is not something you have to qualify for.
      (8 votes)
  • blobby green style avatar for user Mar  Has
    How do I view the transcript of a video lesson?
    (5 votes)
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  • winston default style avatar for user Diarasis Rodriguez
    brings about some interesting questions:
    1. Couple B is working and is jointly filed, right? So if there were another couple (Couple C) with a working dad and a stay-at-home mom, could the dad file for himself?
    2. If say the wife in Couple B stops working, or the wife in Couple C got a job, can both couples go to the IRS to have their files edited?
    (3 votes)
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    • piceratops tree style avatar for user Maria Mejia
      1. Yes, he could file "Married filing separately" but he will most likely not get all the tax benefits for filing jointly with his wife, especially if there are kids.
      2. Starting/stopping work, say in 2018, does not affect previous tax years files. Married couples have the options to file joint, separate, or head of household. You can always amend a previous year's tax forms, assuming you filed those years already, by filling out a Federal 1040X.
      (4 votes)
  • blobby green style avatar for user Parker Spradling
    Didn't the 2017 tax law eliminate the standard deduction?
    (4 votes)
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  • blobby green style avatar for user brandeelindsay
    Please help! I am looking for a video on self-employment tax prep! I have searched and searched. Someone please help me find the information on self-eployment taxes! Thanks!!
    (4 votes)
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  • blobby green style avatar for user Gage Rottum
    No question for this video
    (1 vote)
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  • blobby green style avatar for user SairahA
    why does it matter what year you file your taxes?
    (1 vote)
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Video transcript

- [Instructor] Person A here made $100,000 in the year that we care about, and he's getting ready to pay his taxes, and he's got some deductions. He made a $2,000 donation to charity and a $5,000 donation to state taxes, or not a donation, (chuckles) he paid $5,000 in state taxes. So his total deductions right over here, and we would call these his itemized deductions, 'cause he has literally put all of the items that he's deducting, so his itemized, itemized deductions are going to be $7,000. Now, before he just decides to subtract that $7,000 from his income to get his new taxable income, he should compare that against the standard deduction. No matter what you do here, the IRS will give you just a freebie deduction. And if you're a single person, and this is, obviously, depending on what year you're filing in, but at the time of this video, the standard deduction, the standard deduction is $6,100 for a single person. So in this person's situation, his itemized deductions were larger than his standard deductions, so this is what he is going to take. He can't take both of these, so he can't deduct 13,100. He would wanna pick the larger of these two things. So his taxable income will be $100,000 minus $7,000. So his taxable income is going to be 93, $93,000. This is what he's going to pay taxes on. Now let's think about Couple B right over here. They, as a couple, made $100,000. They're married, they're filing jointly. And they've made a $4,000 donation to charity. They've paid $5,000 in state taxes. And they've paid $3,000 in mortgage interest. And all of these are tax deductions. So what are their total itemized deductions? So, itemized deductions. Let's see, four plus five is nine, plus three is $12,000 in itemized deductions. Now, you might say, oh, this is great. They can deduct 12,000 from their 100,000. But once again, we wanna compare it against the standard deduction. It's not gonna be the same standard deduction as what we saw for a single person. Now, they're married filing jointly. It's actually twice as large. Their standard deduction, their standard deduction is going to be 12,200. So even though they made all of these donations or they paid these taxes and they paid this mortgage interest, it still didn't become larger than their standard deductions, so it's still in their best interest to just go ahead with their standard deduction. So it really didn't matter, from a tax point of view, whether or not they made these donations. 'Cause they still didn't get past this threshold right over here. Once again, you have to pick the larger of these two. You don't get both of these. So their taxable income, Couple B's taxable income, in this scenario, is going to be 100,000 minus 12,200, which is what? 100,000 minus 12,000 would be 88,000. Minus another 200 would be $87,800 of taxable income.