One of the first decisions you’ll make when filing taxes is whether to take the standard deduction or itemize your deductions.
But before you make that call, you need to know what the standard deduction is, who should take it and how it has changed under the tax reform law, which takes effect for taxes filed in 2019. Understanding those important concepts will help you score the largest refund or lowest tax bill. Keep in mind that because the Tax Cuts and Jobs Act has increased the standard deduction amount while limiting the ability to itemize certain expenses, you may opt to take the standard deduction this year, even if you’ve itemized in the past.
Read on for more information about taking the standard deduction versus itemizing deductions.
What Is the Standard Deduction?
The standard deduction is a designated amount of money on which you are not taxed. In other words, it “exempts a certain amount of income from taxation, effectively (creating) a 0 percent tax bracket for the first X amount of income,” said Jennifer Abelaj, senior counsel for Davidoff Hutcher & Citron LLP in New York City, in an email. “It exists as part of a progressive income tax structure in which higher amounts of income are charged a higher tax rate,” she says. “The standard deduction functions as the lowest tax bracket.”
The alternative to taking the standard deduction is itemizing, which is when taxpayers list out eligible tax deductions in order to claim a higher amount of tax-free income.
How Much Is the Standard Deduction?
The amount of the standard deduction you claim depends on your tax status and the year in which you’re filing taxes. For taxes filed in 2019, the standard deduction amount depends on your age, your spouse’s age and your filing status. Here are the standard deduction amounts for taxes filed on 2018 income:
|Filing status||Standard deduction 2018||Over age 65|
|Married filing jointly||$24,000||Add $2,600|
|Head of household||$18,000||Add $1,600|
|Married filing separately||$12,000||Add $1,300|
Note that taxpayers who are blind or over age 65 are eligible to deduct an additional amount when taking the standard deduction. If you’re married and filing separately, you’ll have to coordinate on whether you take the standard deduction. “If your spouse itemizes deductions, you can’t claim the standard deduction,” Abelaj said.
Who Should Take the Standard Deduction?
Whether you need to take the standard deduction will depend on a range of factors, including the amount of deductible expenses you incurred in the previous year and your filing status.
As a general rule of thumb, lower-income filers tend to take the standard deduction while high-income taxpayers are more likely to itemize. However, experts predict that more filers will take the standard deduction this year due to its increase under the new tax law coupled with a new $10,000 limit on deducting state and local taxes.
For example, consider a couple in their 50s that is used to itemizing on their tax returns, says Morris Armstrong, an enrolled agent in Cheshire, Connecticut. Let’s say in previous years they could deduct $15,000 in state and local taxes and $10,000 in mortgage interest, which totaled $25,000, more than the 2018 standard deduction of $24,000 for married couples filing jointly. But because the tax reform law limits the amount filers can deduct in state and local taxes, commonly called SALT taxes, to $10,000, they’ll only have $20,000 in eligible deductions, likely not enough to justify itemizing.
How Can I Itemize My Deductions?
One strategy taxpayers can use to maximize their deductions under the new tax law is called bundling. To implement this technique, they bundle several years’ worth of deductible expenses, such as charitable contributions, into a single year in order to itemize those deductions. The next year, they don’t incur those deductible expenses and take the standard deduction. This allows them to get the greatest value from charitable contributions and other tax-deductible expenses.
As filers consider their 2018 tax bill, “some people may want to defer deductions, (such as) charitable contributions, until 2019 because they’re not going to get much benefit,” says Lance Christensen, certified public accountant and tax practice leader and partner at Margolin, Winer & Evens in Garden City, New York. Or they’ll accelerate 2018 charitable contributions in order to itemize this year. “So there’s some careful planning needed, particularly at year-end,” he says.
Don’t Throw Away Your Receipts
An expense may not be deductible on your federal income tax return, but don’t assume that you should throw away all receipts and neglect to keep good records. Depending on the state in which you live, you may still be able to deduct itemized expenses from your state return.
Whether you can itemize your state return, even if you took the standard deduction on the federal return, “varies by state and it depends on whether you are married and filing a joint or separate return,” Abelaj said. “If you are not married or if you file a married filing joint return, then most states provide that your deduction election is independent of your federal deduction election — so you can itemize on your federal but take the standard deduction on state, and vice versa.”
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