I was recently speaking at a small networking group, about some of the takeaways I had from the 2018 tax season. I was discussing the swing our office saw from taxpayers who had always itemized, to an increase in returns in which they took the standard deduction. There was gentleman who raised his hand and said, “I hate to admit it, but I’m not sure I really know the difference between standard and itemized deductions.”
I’ve always said, that if one person has a question, then there are most likely many others with the same question.
So, here goes.
Both the standard or itemized deductions, work by reducing your taxable income. The standard deduction is just what it sounds like – a fixed, base level amount you can use if you don’t qualify for a higher amount through itemized deductions. The standard deduction is a set amount based on your filing status – married filing jointly, single, head of household and so on.
Beginning with 2018 returns, the standard deduction has been nearly doubled, while the personal exemption has been removed. The new amounts are as follow:
Itemized deductions are tax breaks you can only take if you itemize. By itemizing, you are foregoing the standard deduction (you can’t take both) and opting to take the specific deductions you list on your tax return. Some of the more common itemized deductions include:
Mortgage expense – This can include mortgage interest and mortgage insurance premiums.
Other taxes – You may be able to deduct the amount you paid for state and local taxes, including personal property real estate taxes.
Gifts to charity – if you can itemize, you can deduct the fair market value of the clothes and household item you gave to Goodwill, as well as cash donations to a church or charitable organization.
Medical and dental expenses – A deduction is available for unreimbursed expenses above a certain percentage of your income.
Under the new tax law, if your tax picture is pretty simple, and you don’t have a lot of special circumstances that you can write off as itemized deduction, you’ll probably use the standard deduction.
If you would like more information, please reach out to us, or your tax professional.
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