Please note that the following is meant for informational purposes only and does not qualify as legal or professional advice. If you are seeking professional advice, please speak to one of our CPAs.
One of the most important questions facing tax payers seeking to reduce their tax bill is whether to use the standard deduction or itemize. Thanks to the Tax Cuts and Job Acts from December 2017, the standard deduction has gone up significantly both for individuals and for married joint filers. However, you should still know the details of each option to make the most educated decision possible.
Understanding the Current Standard Deduction Rates
Under the new law, the Standard Deduction for taxpayers under 65 is:
- Single – $12,000
- Married Filing Joint or Qualifying Widow – $24,000
- Head of Household – $18,000
That means that if you choose not to itemize, you can automatically claim a deduction of the aforementioned amounts depending on your filing status.
What You Can Itemize—And What You Cannot
For some people, however, they may have enough itemized deductions that it would make more sense to list them rather than take the standard deduction. The following can be itemized on your tax returns if you are under 65 years old:
- Medical and dental expenses over 7.5% of your adjusted gross income
- Up to $10,000 for state and local taxes
- Home mortgage interest
- Charitable contributions
- Casualty or theft loss from a federally declared disaster
- Gambling losses up to the gambling winnings reported
One important note—make sure you have documentation of everything you intend to itemize. Another good rule of thumb to follow—but not an exact one—is that if your home mortgage interest is more than half of the standard deduction, you will probably want to itemize. However, this is not a hard and fast rule, nor is this an exhaustive list; your best bet is to contact one of McAuley & Crandall’s CPAs to get your specific items checked if you have questions.
There are some items that many may believe can be itemized but actually cannot. These include, but are not limited to:
- Foreign taxes paid for real estate
- Home equity loan interest
- Employee expenses
- Mortgage insurance premiums paid or accrued after 2017
- Miscellaneous itemized deductions
- Personal casualty or theft loss unless the loss is from a federally declared disaster
The Best Advice for Your Standard Deduction
On the surface, the answer to which you should choose is simpler—whichever is higher and would therefore give you a greater return. However, keeping track of your itemized deductions and making sure that they can, in fact, be deducted requires time, knowledge, and effort on your part, and in some cases, the difference may not come out to be that great. The best thing you can do to ensure that you make the right choice is to speak to one of McAuley & Crandall’s experienced CPAs for further information at 913-239-9130.