When it comes to tax, the main goal is to reduce the amount that you pay and maximize the amount that you get back. As such, it is important to be aware of the various tax deductions and credits that you may qualify for.
Below is a guide to the difference between the standard deduction and itemizing your deductions, as well as some information regarding what to expect.
The standard deduction
When compiling your tax return, you will need to decide which is of most value to you: itemizing specific deductions or taking the standard deduction. Many taxpayers automatically opt for the latter as it is the simplest and most convenient. However, it may or may not the right route for you.
So, what can you expect when taking the standard deduction?
It depends on whether you are single or married, along with whether you are filing jointly or separately. Married individuals filing jointly will receive a deduction of $24,400. Married individuals filing separately will receive $12,200, with the head of the household receiving $18,350, whereas single individuals will receive a standard deduction of $12,200.
Itemizing deductions
If you choose to itemize your deductions, you will have the opportunity to take advantage of the following:
• Mortgage interest deductions: As of 2019, homeowners are allowed to deduct the interest they pay on as much as $750,000 of qualified personal residence debt on a first and/or second home.
• Charitable contributions: U.S. taxpayers now have the option to deduct any charitable donations that they make during the course of the year. This can equate to a maximum of 60% of their adjusted gross income (AGI).
• Medical expenses: The Tax Cuts and Jobs Act cut down this threshold from 10% of AGI to 7.5%. However, this cut only applies to the 2017 and 2018 tax years. It will return to 10% for tax year 2019.
• State income tax/state sales tax: When it comes to itemized deductions, you will need to decide whether to claim your state and local income tax or your state and local sales tax. If your state doesn’t have an income tax, the sales tax deduction will be the right choice. However, if your state does have an income tax, this will usually save you more money.
• Property tax: Do you pay property tax on any personal property? If so, you can count it toward your itemized deductions.
The bottom line
While a number of individuals may indeed benefit from itemizing their deductions, following The Tax Cuts and Jobs Act, which was the biggest overhaul to the U.S. tax code in a very long time, the standard deduction greatly increased for the tax years of 2018 to 2019. As such, there is a much higher chance that you will benefit from the standard deduction as opposed to itemizing your deductions this year in particular. The easiest way in which to determine this for sure is to use a tax calculator.
If you are unsure of how to go about your taxes, there is help out there so that you calculate them properly and without making a mistake. Remember to consult with a professional if you are unsure regarding any aspects of your tax return – not doing your taxes properly can cause issues, many of which you will want to avoid.
