Will You Itemize This Year?
Peter VanderWoude, MS, CPA, CGMA
May 1, 2018
With 2017 tax returns completed under a tax code that most of us were familiar with for years, we are now entering a new world for next tax season and it could have a major impact on your tax situation. The Tax Cuts and Jobs Act of 2017 (TCJA) has changed the tax code and it includes changing the level of deductions we can take against our income.
There are two ways to take deductions on your individual tax return to arrive at taxable income. First is the “standard deduction” which is a preset amount based on your filing status of single, head of household, married filing joint, etc. The second is “itemized deductions” which are used when the total of your allowable deductions exceed your preset standard deduction.
Typical itemized deductions are mortgage interest and real estate taxes paid on your home, state income taxes withheld or paid in during the year and charitable contributions. Less common are deductions that need to exceed a percentage of your income to be deductible such as medical expenses and unreimbursed job expenses.
For 2018, the $4,050 personal exemption is eliminated but the standard deduction does rise for each filing status. For instance, the standard deduction for single status goes up from $6,350 to $12,000 and for married filing joint status from $12,700 to $24,000. The controversy for many New Yorkers with the new tax law is that it limits the part of the itemized deduction for state income and real property taxes to $10,000. You don’t need to be wealthy to hit that limit if you own a home and work.
So, will you itemize your deductions for 2018? If you took the standard deduction in 2017 you will likely continue taking the standard deduction. If you have been itemizing your deductions in past years, chances are that you will take the standard deduction unless you have very high mortgage interest, high contributions to charity and high medical or miscellaneous deductions.
Many of you may wonder if gathering and presenting your tax information to your tax professional will be easier in 2018? It could be if you do not have a home office for your business or make a high level of charitable contributions or have high medical expenses. A suggestion is to provide the tax documents that you always have to your tax professional. Once your 2018 tax return is prepared your tax professional can tell what you can ignore for the next tax year.
Aahh, the burning question you want answered, “Will I pay less taxes in 2018?” Based on tax projections I have prepared for my clients, I would say that many of you will pay less tax. There are a few components to why that is the case and we will cover them in future articles.