You can claim the standard deduction or itemized deductions on your tax return. You can use whichever gives you the lowest tax liability, but you cannot claim both. In 2018, personal exemption amounts are no longer allowed. So, which is best for you? In today’s post, we’ll explore some facts that may help you decide.
The amount of standard deduction you can take depends on your filing status. The deduction is then subtracted from your Adjusted Gross Income (AGI). The standard deduction amounts for 2018 are as follows:
Filing Status Standard Deduction
Married Filing Jointly or Qualifying Widow(er) $24,000
Married Filing Separately $12,000
Head of Household $18,000
You may also qualify for an additional standard deduction, dependent on your age or if you are legally blind. If you are 65 or older, you may increase your standard deduction by $1,600 if your filing status is Single or Head of Household. If you file Married Filing Jointly and you or your spouse is 65 or older, you may increase your standard deduction by $1,300. If both you and your spouse are 65 or older, you may increase your standard deduction by $2,600.
If you are blind, you may increase your standard deduction by $1,600 if you file Single or Head of Household. If you file Married Filing Jointly and you or your spouse is blind, you may increase your standard deduction by $1,300. You may increase your standard deduction by $2,600 if both you and your spouse are blind.
The Tax Cuts and Jobs Act of 2017 made drastic changes to allowable itemized deductions for 2018 and years going forward. Therefore, it is more important for you to determine if it is more beneficial to take the standard deduction or to itemize your deductions.
State and local income taxes and sales and property taxes are limited to a combined total deduction of $10,000; anything above that amount is not deductible. The amount of mortgage interest you can deduct may also be limited. If your loan was originated or was treated as originating on or before December 17, 2017, you may deduct interest on up to $1 million in qualifying debt. If the loan originated after that date, then you may only deduct interest on up to $750,000 in qualifying debt. This limit applies to the combined amount of loans used to buy, build or substantially improve your main home and second home. Interest paid on home equity loans is not deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home.
The deduction for charitable contributions is now limited to 60% of AGI, up from 50%. If you make large donations to charity, you may deduct more of what you give in 2018.
If you plan to take a deduction for casualty and theft losses in 2018 the loss must be attributable to a federally declared disaster to be deductible. Finally, a big change is that miscellaneous itemized deductions such as unreimbursed employee expenses, tax preparation fees, investment management fees, and safe deposit box fees, among others, are no longer deductible.
Again, due to the increase in standard deductions, the elimination of personal exemptions, and the changes to itemized deductions, it is important to take a closer look at what deduction method you should claim in 2018. An in-depth conversation with your tax advisor is a good place to start.