The recent changes to the tax code via the tax reform bill may not allow you to file your taxes on a postcard, but they will likely result in changes to your tax return. In particular, the boost to standard deductions and limitations to several of the larger itemized deductions means it's far more likely you'll not want to itemize starting with the 2018 tax year. This could have a significant impact on which tax breaks you'll want to pursue during 2018 and in future years.
Itemized deductions vs. standard deduction
When you prepare your tax return, you can choose between claiming the itemized deductions you qualify for, or taking a "standard" deduction that's supposed to represent the typical deduction for a taxpayer with your filing status (single, married filing jointly, etc.). Since this is an either-or decision, it only makes sense to itemize your deductions if the total of those itemized deductions is greater than what you'd get from the standard deduction. It's also much simpler to take the standard deduction and skip all the fuss and bother of itemizing, so if there's only a slight difference between the two totals, the standard deduction may still be the way to go. It's not surprising that only about 30% of taxpayers have chosen to itemize deductions in recent years.
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Standard deductions will almost double
Starting with the 2018 tax year, the standard deduction will go up to $12,000 for single filers and $24,000 for married filing jointly taxpayers. That's almost twice the 2017 standard deduction amounts ($6,350 for single filers and $12,700 for joint filers). In other words, you'll need almost twice as many itemized deductions as last year to make itemizing a better deal than claiming the standard deduction.
Itemized deductions are shrinking
Not only is the standard deduction going way up, but some of the best itemized deductions have also been limited or in some cases completely repealed. For example, the state and local taxes deduction -- which has historically appeared on 96% of tax returns that itemize -- has now been capped at $10,000 per year. This limit includes both state income taxes as well as local taxes such as property taxes.
Other itemized deductions that have taken a hit include the mortgage interest deduction (now capped at loans of $750,000 and below on new mortgages, and eliminated on home equity loans), the casualty and loss deduction (now limited to presidentially declared disasters only), and all miscellaneous itemized deductions (completely repealed).
Cutting your tax bill in 2018
By reviewing your 2017 tax return, you'll probably be able to tell whether or not it will make sense to itemize in 2018. If you didn't have enough itemized deductions to go for it on your 2017 tax return, you almost certainly won't be doing so for this year, given how much less appealing itemizing will be. And if you itemized deductions for your 2017 tax return but didn't exceed the standard deduction by a lot, you probably won't find it worthwhile to itemize in 2018. Only if you had a ton of itemized deductions in 2017 -- or you plan for a major life change in 2018 that will greatly increase your itemized deductions -- will it likely makes sense to itemize your deductions for the current tax year.
This exercise will make tax planning a lot easier for 2018. If you're one of the majority of taxpayers who won't want to itemize for 2018, that means you won't need to bother trying to maximize your itemized deductions for the year. If you're not itemizing, you won't be claiming the medical expense deduction, the charitable donation deduction, the state and local taxes deduction, or the mortgage interest deduction. So you don't need to worry about tracking your medical expenses for tax purposes, trying to max out qualifying charitable deductions, and so on.
Instead, you can focus your time and energy on tax breaks that don't require you to itemize. For example, you can claim the deduction for making IRA contributions whether or not you take the standard deduction, so maxing out those contributions could help make up for losing those itemized deductions you claimed last year. Other tax breaks that don't require itemizing include the student loan interest deduction, the capital loss deduction, and the health savings account contribution deduction. And all tax credits are open to both itemizers and non-itemizers, so by all means grab as many of these as you can.
Finally, consider having a tax professional prepare your 2018 tax return for you in early 2019. You'll increase your odds of grabbing every possible tax break, and also ensure that your return will correctly incorporate all the recent changes to the tax code. Tax preparation fees may no longer be deductible, but if your preparer finds just one extra deduction or credit that you missed, it will probably be enough to cover their fees and then some.
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