LFL Veritas Blog: Tax Planning for Individuals
LFL Veritas Blog: End-of-Year Tax Planning for Individuals
Does It Still Pay to Itemize Under the TCJA?
One of the biggest changes to the tax code under the Tax Cuts and Jobs Act of 2017 is the increase in the standard deduction. The standard deduction has increased as follows:
- Single: $12,000 (up from $6,350)
- Married filing jointly: $24,000 (up from $12,700)
- Head of household: $18,000 (up from $9,350)
- Married filing separately: $12,000 (up from $6,350)
Also, the deduction for state and local taxes has been capped at $10,000 and several other deductions have been eliminated. The idea was to discourage itemizing, and that seems to be working.
The fact is, it no longer makes sense for most people to itemize things like medical and dental expenses, charitable donations, and unreimbursed employee expenses. The average person won’t have enough deductible expenses to justify choosing that option over the standard deduction.
Of course, if you still plan to itemize, you have to save those receipts, while the standard deduction requires no complicated math or recordkeeping. Even if the total from your itemized list exceeds the standard deduction, the extra work involved might not be worth it for a limited return.
If you pay significant mortgage interest, which would push your deductions over the standard deduction amount, it could still make sense to itemize.
If you give generously to charity, itemizing is an option worth considering. Although wealthy donors are able to deduct more of their adjusted gross income in charitable contributions, a major concern in the nonprofit community has been that giving would decrease because most people no longer have a tax incentive to donate.
We would never suggest that people stop supporting worthy causes and nonprofit programs. However, some donors are choosing to double and stagger their charitable giving.
For example, instead of giving $10,000 every year, they would give $20,000 this year, skip next year, give $20,000 the following year, skip the next year, etc. Rather than donating every December, you might make a donation in January and December of the same year.
In this scenario, the taxpayer would likely exceed the standard deduction in the years in which they give, allowing them to realize tax benefits from their charitable giving. The nonprofit would also receive the same amount of money, just on a different schedule.
As always, the decision to itemize or take the standard deduction depends on your individual or family situation and the tax laws of your state. For example, New York is still following the pre-TCJA rules, while New Jersey allows medical expense deductions at a much lower threshold than the federal tax code. We recommend discussing these strategies with your accountant before making year-end tax decisions.