Year End Tax Tips Continued – Standard vs. Itemized Deduction
I’ve been on a roll lately, encouraging readers to revisit their tax planning in light of the Tax Cuts and Jobs Act (TCJA), which went into effect last year. Today, I’ll cover why it’s become so difficult to claim itemized deductions, and what that means to you. After that, I’ll cover how those who are charitably inclined might still be able to periodically itemize their deductions, with a bit of proper planning.
Bottom line, the TCJA made it much more difficult to claim itemized deductions. It’s estimated that two-thirds of taxpayers who used to itemize now take the standard deduction instead. Three main ingredients contribute to this new normal.
1. A Low-SALT Diet: First, the TCJA limited the itemized deduction you can take for your state and local taxes (SALT). $10,000 is now the most you can claim as an itemized deduction for all eligible income, real estate, property, and sales taxes – a fraction of what many taxpayers used to be able to claim.
2. A Smaller Menu: The TCJA also eliminated all miscellaneous deductions that used to be on the menu. For example, you can no longer itemize moving costs, tax preparation fees, investment fees, safe deposit box rental and, a host of other, formerly deductible expenses.
3. A Fatter Standard Deduction: After putting itemized deductions on a diet, the TCJA nearly doubled the standard deduction you can take. For single filers it increased from $6,350 in 2017 to $12,000 in 2018, and from $12,700 to $24,000 for married filers.
Since you gain nothing by itemizing unless your total itemized deductions exceed the standard deduction, most taxpayers discovered their itemized deductions are no longer deductible.
So where does this leave the charitably inclined? Unfortunately, if you’re taking the standard deduction, you lose out on any tax benefit for donating to your favorite non-profit organizations.
In my next article, I’ll share some techniques that may allow you to write off your contributions after all. It does take some planning, so before you write any year-end charitable checks, you may want to catch my column first.
Oh and, as always, please seek professional guidance for your detailed tax planning.
Written by John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ who founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, which fits right in with his dedication to helping families and retirement plan providers build durable wealth, while simplifying their financial path. Learn more at www.alliantwealth.com.