Standard tax deductions 2019/2020
This year, thanks to a higher standard deduction, more taxpayers will opt for not itemizing tax deductions. This simple, no questions asked option makes sense for most people when filing their taxes. However, itemizing still pays off for many people, and it’s always worth taking the time to evaluate which option will allow you to keep more of your hard earned income. This article will help you determine when it makes sense to itemize tax deductions.
You will need to have some big deductions in your tax return to beat this year’s standard deductions.
Here are the most likely candidates.
Your mortgage has the potential to pay you back at tax time. Your mortgage lender will provide you with the interest you paid during the 2018 tax year. You should receive this breakdown from your lender in January as a Form 1098. This form will also show any points that you paid on your loan over the course of the year. You’re allowed to add paid property taxes to your deduction, but not your homeowner’s insurance or HOA fees. If your mortgage interest and property taxes equal more than the standard deduction, you now know it’s worth your time to start adding up all of your other qualifying itemizations.
The charitable cash donation limit is to 60% of AGI this year (50% last year) Qualifying charities usually require registration as a 501(c)(3). There are exceptions to this though. For example, veteran’s organizations with 90% war vet membership, as well as volunteer fire departments qualify. These are 501(c)(4) organizations. Examples of non-qualifying charities are social welfare and civic organizations registered under 501(c)(4). Be sure to do your research before claiming charitable contributions as a deduction. In order for the IRS to accept the deduction, be sure of appropriate registration of the organization or cause. As exemplified above though, there are specific exceptions made by the IRS.
You can still claim donated items like clothing, furniture, and other household items if you have a receipt listing acceptable values for your donated items.
The IRS allows you to deduct non-reimbursed medical expenses that exceed 7.5% of your AGI (adjusted gross income). This means that itemized medical costs won’t be of help to many taxpayers at the end of the year. If you’re sure that what you had to pay for medical fees goes beyond 7.5% of your income, then go ahead and start itemizing. Qualifying medical costs include doctors, dentists, lab fees, glasses and contact lenses, prescription drugs, and medical supplies.
You may also deduct your health insurance premiums, as long as they’re not paid by your employer as a pre-tax payroll deduction.
State and local taxes
State and local taxes, including any 2017 refund that you applied to your 2018 tax bill, are deductible. A change over last year is that there is a cap of $10,000 for this deduction, regardless of your filing status.
Federal estate tax on income in respect of a decedent
One deduction that sometimes goes unnoticed is the income in respect of a decedent. Inheriting a company retirement plan or a traditional IRA can trigger it. Let’s say you inherit $50,000 retirement account from your dear aunt Jude. This will increase your aunt’s estate tax bill, but you can take the deduction for the tax year you report the income.
As an added bonus, this deduction is not included in the IRS 2% limit on miscellaneous deductions. The IRS allows certain miscellaneous tax deductions, such as unreimbursed employment expenses and tax preparation costs but only up to 2% of the taxpayer’s income. Other deductions that are not included in the 2% limit are an amortizable premium on taxable bonds, a deduction for excess premium, and casualty and theft losses of income-producing property
The bottom line
Don’t assume it is best to claim the standard deduction. Add the deductions you qualify for and compare it to your standard deduction for this year. If the itemized deductions are larger than your standard deduction, consider filing schedule A with your return.
Once you know that itemizing tax deductions will make sense based on some of these high dollar qualifiers, it’s well worth your time to find out about every other qualifying deduction.
If you are already facing tax debt, consider hiring a tax relief company to settle your tax debt and check what tax-efficient measures you can take to reduce your tax liability. Head of household taxpayers – $18,000