When sitting down to figure out one’s tax returns, one of the first questions the taxpayer must answer is whether to itemize their tax returns or take the standard tax deduction. The question does not have an easy answer, especially after the passage of the Tax Cuts and Jobs Act (TCJA).
So how does a taxpayer figure out what is best for their situation? For most, the first step is often to determine if their 2019 tax deductions exceed the standard deduction. For 2019 tax returns, the standard deductions are set as follows: $24,400 for married couples filing a joint tax return, $18,350 for those filing a return as a head of household, and $12,200 for singles or for married couples filing separate tax returns. Keep these numbers in mind while considering the following:
- Mortgage interest deductions. In most cases, the Internal Revenue Service (IRS) allows taxpayers to deduct their home mortgage interest payments. This can include mortgages taken out to buy, build or substantially improve the home. However, the agency generally requires the total mortgage to be less then $1 million to qualify for the deduction.
- SALT deductions. The IRS also allows taxpayers to claim a state and local tax deduction on their federal returns. This can include property tax payments. Current tax law generally caps this deduction at $10,000.
- Charitable donations. The donation of goods and cash payments to qualifying charitable organizations can also qualify for a federal tax deduction.
Taxpayers should add up these and other potential deductions to get an idea of their overall itemized deduction. Once an estimate is calculated, compare that number to the standard deduction rate to help guide the decision.
It is also important to note that taking deductions can increase the risk of a federal tax audit. As a result, it is generally only wise to take this option if the difference is significantly more than the offered standard deduction.