Should I Itemize or Take the Standard Deduction?

How to choose whether to itemize or take the standard deduction.

Every year it's up to you to decide whether you should you itemize or take the standard deduction. However, as a result of the Tax Cuts and Jobs Act (TCJA), far fewer Americans will need to itemize than ever before starting in 2018.

The Standard Deduction

The standard deduction is a specified dollar amount you are allowed to deduct each year to account for otherwise deductible personal expenses such as medical expenses, home mortgage interest and property taxes, and charitable contributions. You take the standard deduction instead of deducting your actual personal expenses. The amount you are allowed to deduct depends on your filing status and is adjusted for inflation each year. The TCJA roughly doubled the standard deduction starting in 2018. The IRS website has information on the current year standard deduction amounts.

For tax year 2018, the standard deduction amounts are as follows:

Filing Status

Standard Deduction

Single

$12,000

Married Filing Jointly

$24,000

Married Filing Separately

$12,000

Head of Household

$18,000

Surviving Spouses

$24,000

Itemizing Deductions

Instead of taking the standard deduction, you always have the option of itemizing your deductions. This means you individually deduct the actual amounts of certain expenses item by item instead of taking the standard deduction. You must list all the deductions on IRS Schedule A and include this schedule with your tax return. This is a lot more work than taking the standard deduction. You have to know what expenses are deductible and keep track of them. You also need to keep records of your expenses. Cancelled checks or credit card statements are not enough—you need to keep receipts and other bills showing what you spent the money on.

Itemized deductions are usually personal in nature, and don’t include business expenses. Some of the more common ones are:

  • medical and dental expenses
  • state and local income taxes, or sales tax
  • real estate and personal property taxes
  • home mortgage interest
  • charitable contributions, and
  • casualty losses.

The largest of these deductions are those for home mortgage interest, property taxes, and state income tax. For this reason, homeowners are more likely to itemize, while renters rarely do so.

However, most of these expenses cannot be deducted in full. Instead, they are subject to special limitations. The TCJA stiffened the limitations for many of these deductions. For example, home mortgage interest on homes purchased in 2018 through 2025 may only be deducted on acquisition loans totaling $750,000 (it was $1 million under prior law). And only a maximum $10,000 deduction is allowed for state and local taxes and property taxes. Casualty losses are deductible only for losses due to federally declared disasters. Medical expenses are deductible for 2018 only to the extent they exceed 7.5% of your adjusted gross income (the threshold goes up to 10% in 2019).

Moreover, the TCJA eliminated itemized deductions for several types of expenses during 2018 through 2025—these include:

  • unreimbursed employee expenses, such as work-related driving
  • tax preparation expenses
  • investment expenses, and
  • moving expenses to a new job.

Consequently, you may find that few or none of your personal expenses are deductible.

Choosing Whether to Itemize

You must choose whether to itemize or take the standard deduction each year. The IRS won’t tell you what’s in your best interest—it doesn’t care if you make the wrong choice and overpay your taxes. You (or your tax preparer) must decide. Obviously, you should itemize only if it will give you a larger total deduction than the standard deduction for that year. As a result of the TCJA, tax experts estimate that only about 11% of taxpayers will itemize during 2018 and later, down from 32% in prior years.

Due to the changes brought about by the TCJA, you will likely be able to itemize only if you:

  • had large uninsured medical and dental expenses during the year
  • paid substantial interest and taxes on your home
  • had significant uninsured casualty losses due to a federally declared disaster, or
  • made large charitable contributions.

Through careful planning, you can often increase your deductible expenses for a given year so that it pays to itemize that year. For example, you can bunch your charitable contributions in one year, instead of spreading them over two or more years. This will give you a bigger deduction for the bunched year and may enable you to itemize. The same strategy can be used for discretionary medical expenses.

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