The decision to itemize deductions has plagued taxpayers for almost 65 years. Each year, clients and tax professionals crunch numbers to determine whether the standard deduction or itemized deductions produce the lowest possible taxable income.
The standard versus itemized deduction debate isn’t just an issue for the individual taxpayer — it also results in millions of dollars in lost tax revenue for the government. For fiscal year 2018 (Oct. 1, 2017 – Sept. 30, 2018), the four largest itemized deductions — state and local income or sales taxes, home mortgage interest, charitable gifts, and real estate taxes — are estimated to account for 17.8% ($241.2 billion) of the approximately $1.4 trillion in tax expenditures (losses).*
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law, reforming the rules around many itemized deductions, including the top four. And now, after years of having a basic understanding of what produces the lowest possible taxable income, you may again find yourself asking the question: to itemize or not to itemize?
What you should do will depend on your filing situation. Once you understand what WILL change, it’s time to start making decisions that will either increase your itemized deductions or decrease your taxable income and adjust your W-2s.
The best course of action is to get insight into your specific situation from a certified tax professional like me. If you’d like to make an appointment, contact me today. I look forward to speaking with you.
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