 If we're looking at the income tax formula, we're down here at, Yeah, maybe I'll file a federal income tax return. The standard deduction, which you might call the below the line deduction, as opposed to the above the line deduction, the adjustments to income. Let's just do a quick recap of the income tax equation here, the first half in essence being an income statement because it's an income tax. Although it's a strange income statement, remembering when we think about the income statement, income is basically bad. Everything that's flipped on its head for taxes and the expenses called deductions in this case are basically good. The second half of the income tax equation will be calculating the income tax, applying any other taxes like self-employment tax, for example. Employable or very employable. Applying credits and payments in order to get to the refund or the amount due were focused here still on the top half of the equation. In essence, the income statement. So income statement is in essence income minus expenses or income minus deductions. But we have a couple steps along the way before we get to the net income or taxable income. IRS code allows us to deduct from your taxable income. We've got income minus the adjustments to income, the above the line deductions we saw in a prior presentation gets us to the adjusted gross income or AGI. And then we take the greater of the standard deduction, our focus now or the itemized deductions. We'll talk about itemized deductions later. Now our focus is on the standard deduction. Now also note that a few years back, they increased the level of the standard deductions, the amounts of the standard deduction, which I believe was an attempt to make the tax code a little bit easier. So a quick recap on why they might do that or the thought process of that would be, if you were to make the tax code easier, you might say, hey look, let's just get rid of the itemized deductions, for example, and try to flatten out possibly the tax rates so that it's easier to actually calculate the tax. Those are usually the thought processes that come into place. And the reason for that would be if you think about an income tax, the natural type of expenses for an income tax would be those expenses that you needed to expand in order to generate the income. So if you had two businesses, for example, and one of the businesses had a lot more expenses that they need to expand in order to generate the revenue, you wouldn't really want to tax both those businesses on their gross income, the top line, but on the net income, because one business had to consume a lot more in order to generate the revenue. Now, in our income tax system, a lot of people are W2 employees, which means that you don't have a lot of deductions with relation to your job because the assumption is that they're handled by the employer. But you can see that when you talk about a schedule C, for example, the general rule being if it's a deduction, if you had to consume it in order to generate the revenue. And then the tax code puts all of this other stuff in place, like we're going to give you a deduction to save for retirement or something like that. We're going to give you a deduction because we want to incentivize homes. We want to give you a deduction of the state taxes for whatever reason. We want to give you a deduction in order to incentivize charitable deductions and whatnot. So people give to charity. These could all be good causes, but you can also see how they can complicate the code and they often tend to, as complicated code, more laws technically do benefit more wealthy individuals. The more complex the code is, the more kind of nuanced the deductions are, and the more the deductions you could get if you had the cash flow to do whatever the law says to do, usually that's going to benefit the higher income individuals. So oftentimes there's kind of a move to flatten things out to try to lower the itemized deductions from time to time and then try to possibly flatten out the progressive tax rates so that it's easier to calculate. And then once you do that, then it gets bloated back up again. So right now more people are taking the standard deduction than they were before and then I would suspect in the future, depending on what happens in politics that will see bloating in the tax code that will either make the itemized deductions more relevant in the future or they'll start putting deductions elsewhere, like on the first page of the 1040 or in the adjustments to income or something like that. But that's where we are now. So here's where the standard deduction is on the first page of the Form 1040. You've got basically your deductions on the left hand side listed out. So if you're single filer versus married filing joint versus head of household and so on, those are the general rules. We'll take a look at some examples of them in a future presentation in tax software and tax forms. So standard deduction tip. So if you are filing Form 1040 SR, you can find a standard deduction chart at the last page of that form that can calculate the amount of your standard deduction in most situations. Obviously tax software is often a useful kind of component. Notice that there's a couple kind of variations to the standard deduction. It's kind of in that box on the first page of the Form 1040. But then if you're over a certain age, then there could be an adjustment to the standard deduction. And if you're blind, there could be some other adjustments to the standard deduction, which are often related to the Form 1040 SR. But again, we'll dive into that when we get into the example problems.