Itemize or take the standard deduction on your federal income ta - wave3.com-Louisville News, Weather & Sports

Itemize or take the standard deduction on your federal income tax?

© iStockphoto.com/LIgorko © iStockphoto.com/LIgorko

MoneyTips

Should you itemize deductions or take the standard deduction for tax year 2017 (the taxes you will file in early 2018)? Either path may be right for you, but don't just assume the standard deduction is your best option. With today's sophisticated tax software, it's relatively easy to calculate your itemized deductions and see if you can deduct more than the standard amount.

First, make sure the standard deduction is even an option that you can take. In some cases, the standard deduction is not permissible for example, if you are a married couple filing individually and your spouse itemizes, then you should use IRS Publication 17 to help you determine your eligibility.

Assuming you are eligible, find the standard deduction for your filing status. For 2017, the standard deduction is $6,350 for single filers or married couples when they file separately, $12,700 for married couples filing jointly or qualified widow(er)s, or $9,350 for those filing as the head of a household. The standard deduction may increase if you are blind or age 65 or above see Publication 17 for details.

Use the IRS Schedule A form to help you calculate your deduction. The easiest way to do this is to use tax software. If you can't afford tax software, the IRS Free File program is available to help.

Review Schedule A and the corresponding instructions to see what deductions may apply to you. Examples include charitable deductions, home mortgage interest, and state/local tax payments. IRS Publication 529 can help you identify items under miscellaneous deductions that you may not have considered.

Remember that you are only comparing deductions from Schedule A to the standard deduction. Deductions like self-employment taxes, student loan interest, and educator expenses are known as above-the-line expenses (lines 23-35 on Form 1040) because they are above the adjusted gross income (AGI) line on your form. They subtract directly from your AGI and you can claim them even if you don't itemize.

The recently passed Tax Cuts and Jobs Act has very little effect on this year's decision. With the exception of a temporary decrease in the threshold for medical and dental expense deductions, almost all of the bill's provisions will take place in tax year 2018 (the forms you will file in early 2019). Big changes take effect then, making it less likely that itemizing would make sense for you.

For tax year 2018, the standard deduction almost doubles to $12,000 for single filers, $24,000 for married couples filing jointly, and $18,000 for those filing as head of household. At the same time, some deductions have been eliminated and others have been reduced, but the overall limit on itemized deductions that you can take has been eliminated.

According to Michael H. Karu, CPA/CFF/CGMA, a partner at Levine, Jacobs & Company, a certified public accounting firm based in Livingston, NJ, "Another change to the tax law is the elimination of personal exemptions. For the current tax year, every person is entitled to a personal exemption of $4,050. That is in addition to any itemized deductions. For next year, those are gone. This is truly significant, especially to families with several children. For a family of five, two parents and three children, in 2017 there would be an allowable deduction of $20,250. At a 25% tax rate, that translate into a current year tax savings of over $5,000. For subsequent years, it's been eliminated."

Forbes has provided a visual guide to what the revised Schedule A should look like for tax year 2018 again, not for the 2017 taxes that you are filing this April. Don't get too used to the 2018 rules, because many of the provisions sunset after 2025.

Regardless of the tax rules, the logic behind the calculation is the same every year. Find the standard deduction for your filing status, calculate the deductions using Schedule A and the corresponding forms while incorporating any limitations that apply to you, and find out if the itemized deductions are more than your standard deduction. If you need help beyond what software can provide, consult the IRS Interactive Tax Assistant or contact a qualified tax professional to help you decide.

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Originally Posted at: https://www.moneytips.com/itemize-or-take-the-standard-deduction-on-your-federal-income-tax

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