GRAND RAPIDS, Mich. — Tax season is in full swing. If you haven't filed your taxes yet because you still have questions on how -- no worries -- our Smart Money expert is here to provide some tips.
Chris Harper, an Instructor of Accounting at Grand Valley State University and Senior Manager with Hungerford Nichols shares information on standard and itemized deductions and which may be better suited for the a situation or person.
Standard Deduction vs. Itemized Deductions
There are two options to reduce taxable income: claim the standard deduction or claim the total of itemized deductions if this exceeds your standard deduction.
Standard deductions increased slightly for 2019
- Single: $12,200 (versus $12,000 in 2018)
- Married filing jointly: $24,400 (versus $24,000 in 2018)
- Married filing separately: $12,200 (versus $12,000 in 2018)
- Head of household: $18,350 (versus $18,000 in 2018)
Standard deductions increase if you and/or your spouse are over age 65 and/or blind.
Consistent with 2018, many taxpayers will no longer itemize because standard deduction amounts increased dramatically.
Commonly Encountered Itemized Deductions
Some commonly itemized deductions are medical and dental expenses. You may deduct certain medical expenses that were not reimbursed and exceed 7.5% of your adjusted gross income.
Some examples of itemized deductions include:
- Payments to doctors, dentists, surgeons, and other medical practitioners.
- Payments for insulin or other drugs that require a prescription.
- Insurance premiums for medical or qualified long-term care (excludes payments made by your employer).
- Prescription eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, or false teeth.
- State and local taxes: Your deduction is limited to $10,000 ($5,000 if married filing separately) for a combination of state and local income tax or sales tax (if higher), and ad valorem property taxes. Any amount over the $10,000 limit cannot be deducted.
- Home mortgage and home equity interest: In general, you may deduct mortgage interest paid during the year on the first $750,000 mortgage debt for your primary or second home. Mortgages that existed before December 15, 2017 are subject to a grandfathered $1,000,000 debt limit. You typically may only deduct the interest paid on home equity debt if the loan proceeds were used to buy, build, or substantially improve your primary or second home.
- Charitable contributions to qualifying organizations. If you donate property other than cash, you may generally deduct the fair market value of said property. Donating appreciated stock directly to a charitable organization can be advantageous because you can exclude the capital gain from income if you have owned the stock for more than one year.
Consider Bunching Itemized Deductions
When looking to take an itemized deduction, considering bunching. This strategy may be useful if the total of your itemized deductions approximates your standard deduction.
You could bunch itemized deductions in one year if this will allow you to exceed the applicable standard deduction. Then you would claim the standard deduction in a subsequent year.
Essentially, this strategy would allow you to itemize every other year while claiming the standard deduction for years that you do not claim itemized deductions.
If you're in need of more financial and tax guidance, check out the advisers at Hungerford Nichols.
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