Deductions: To itemize or not?

That is indeed the question, especially because the 2017 Tax Cuts and Jobs Act, which is expected to be in effect through 2025, eliminates the benefits of itemizing deductions for many Americans.

In case you’re already lost in the sauce, let’s start with the basics. A deduction is any item or expenditure you can subtract from your total (gross) income to reduce the amount that’s subject to income tax. (One deduction you’re probably familiar with is charitable donations.) There are two ways you can take deductions on your federal income tax return: You can itemize your deductions – that is, figure out and list each item you’ll be deducting, and its amount – or you can use the standard deduction, an amount set by the IRS that is not subject to tax.

Among other changes, the new tax law nearly doubles the standard deduction across the board: to $24,000 for married couples filing jointly (from $13,000), to $12,000 for single filers (from $6,500), and to $18,000 for heads of household (from $9,550). This increase means that it is far less likely that your itemized deductions will amount to more than the standard. The standard deduction amount may also vary depending on your income and age, and changes each year; check here for more information.

The new tax law nearly doubles the standard deduction… mean[ing] that it is far less likely that your itemized deductions will amount to more than the standard.

Certain taxpayers can’t use the standard deduction:

• A married individual filing separately whose spouse itemizes deductions
• An individual who files a tax return for a period of less than 12 months because of a change in his or her annual accounting period
• An individual who was a nonresident alien or a dual-status alien during the year (that can change, however, if you marry a U.S. citizen or resident alien)
• An estate or trust, common trust fund, or partnership

You should itemize deductions if your allowable itemized deductions are greater than your standard deduction, or if you must itemize deductions because you can’t use the standard deduction. Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.

You would usually benefit by itemizing deductions (using Form 1040, Schedule A) if you:

• Can’t use the standard deduction or the amount you can claim is limited
• Had large uninsured medical and dental expenses
• Paid interest or taxes on your home
• Had large unreimbursed employee business expenses or other miscellaneous deductions
• Had large uninsured casualty or theft losses, or
• Made large contributions to qualified charities.

Your itemized deductions may be limited and your total itemized deductions may be phased out (reduced over time) if your adjusted gross income for 2017 exceeds the following amounts, given your filing status:

• Single: $261,500
• Married filing jointly or qualifying widow(er): $313,800
• Married filing separately: $156,900
• Head of household: $287,650

To determine if you’re subject to the phaseout on itemized deductions, use line 29 of the Itemized Deductions Worksheet in Form 1040, Schedule A.

Extra credits

Two other tax-reducing policies that you may not have known you can claim: the Educator Expense Deduction and the Child and Dependent Care tax credit.

Though unreimbursed employment expenses have been ended for most as a result of the 2017 Tax Cuts and Jobs Act, teachers are still covered for up to $250 in unreimbursed classroom expenses each year. That is, anytime you spend your own money on classroom supplies, you can reduce that amount from your adjusted gross income when you file your federal taxes, up to $250.

Another deduction that made it through the 2017 tax legislation is the Child and Dependent Care tax credit, which allows you to claim expenses related to caring for your children, spouse, or adult dependents, up to $3,000 for one dependent, or $6,000 for two or more. Within certain guidelines, this policy allows you to deduct the money you pay someone to provide care while you are working or looking for work.

Adapted from this piece on IRS.gov.

FOR MORE INSIGHT

On deductions
Should I itemize? (Internal Revenue Service)
Standard deduction (Internal Revenue Service)
Your federal income tax for individuals (Internal Revenue Service)
Your complete guide to the 2018 Tax Changes (The Motley Fool)
Deducting summer camps and daycare with the Child and Dependent Care Credit (TurboTax)
The educator expenses tax deduction (The Balance)

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