Should I itemize or use the standard deduction?

The most common of all questions

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Becky L. Barnett, EA, MBA

Every year this seems to be one of the biggest questions asked to a tax professional. Should I itemize or use the standard deduction? Of course, it’s never really a straight forward answer, so we accountants like to use our standard “it depends” answer. The Tax Cuts and Jobs Act of 2017 introduced a much higher standard deduction than had previously been allowed, and really it changed the way many taxpayers filed.

What is the standard deduction?

The standard deduction is a standard dollar amount that reduces your taxable income. Every year the IRS sets this dollar amount and adjusts it for inflation. In 2019, the standard deduction for single taxpayers is $12,200, and for married filing joint taxpayers, it is $24,400. There are two qualifications that will also increase the standard deduction, being 65 or older and being blind.

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Using the standard deduction is beneficial in that you do not need to keep any receipts or records for any deductions. You do not need to spend time researching your deductions either. Simply put, a standard deduction allows you to reduce your taxable income, even if you have no qualified expenses.

What is an itemized deduction?

Itemized deductions are deductions that also reduce your taxable income. However, unlike the standard deduction, it is made up of multiple deductions that are added together to reduce your taxable income. Those deductions can include the following:

  • Mortgage interest on a loan of $750,000 or less
  • Mortgage insurance premiums
  • Charitable contributions
  • Medical expenses (greater than 10% of your AGI)
  • State and local income taxes up to $10,000
  • Gambling losses
  • Student loan interest up to $2500

Learn about Schedule A Itemized Deductions

Which one should I use?

Deciding on whether to use the standard deduction or itemize really depends on your specific situation. Do not automatically assume simple is better. If you have significant deductible mortgage interest, have made large charitable contributions, or even large medical expenses, it is quite possible that itemizing will save you more taxes.

It is estimated that during the 2018 tax filing season, almost 90 percent of taxpayers used the standard deduction. The dramatic increase in the standard deduction has become a cause for concern and confusion for those taxpayers that have typically itemized.  Many taxpayers are uncertain if they should now use the standard deduction, instead of itemizing their deductions.

Taxes can be quite complicated and trying to decipher which deduction is most beneficial can be complex. It is highly recommended that you seek the advice from a Henry+Horne tax professional if you are uncertain which deduction would be best for you. We look forward to helping you make this decision.

Becky L. Barnett, EA, MBA, specializes in preparing tax returns for partnerships, corporations, trusts and individuals. She can be reached at (480) 839-4900 or BeckyB@hhcpa.com.