The Big Tax Question: Should You Itemize or Take the Standard Deduction?

The rules governing what you can claim as an itemized deduction on your taxes are complex. So, how do you decide whether to itemize or claim the standard deduction? Obviously, you want to choose the option that results in the biggest deduction against your income, minimizing the income tax you must  pay Uncle Sam.

Statistics indicate that millions of Americans recently took the standard deduction rather than laboring over the paperwork involved in itemizing. Fortunately, due mainly to the Tax Cuts and Jobs Act of 2018 –which significantly increased the standard deduction – this is the right move for many families looking to minimize their tax burden.

However, you won't really know which method is better unless you calculate your itemized deductions and then choose the option that benefits you financially. Don’t leave money on the table. Instead, speak with your team of financial professionals to determine which method can save you the most money.

Let's look at the pros and cons of each method.

Pros and Cons of Itemizing Your Tax Deductions

Itemizing your tax deductions can make sense under the following circumstances:

• You had large dental or medical expenses not covered by insurance.

• Your real estate property taxes and mortgage interest were high.

• You have large deductions that you can file under “Other Itemized Deductions.”

• You made large contributions to nonprofit organizations.

Talk to your financial team to determine whether there are any restrictions on itemizing your tax deductions and whether it would be beneficial to you.

The biggest benefit to itemizing your tax deductions is they could potentially exceed the standard deduction amount, allowing you to reduce the tax you owe. The downside is gathering all the supporting documents for your deductions (whether you prepare your own taxes or provide to an accountant).

Pros and Cons of Claiming the Standard Deduction

Simplicity is the main selling point of standard deductions. You can claim the standard deduction if you file as single, married filing jointly, or as head of household as indicated on Form 1040. There is no paperwork involved, and you don't have to dig out the calculator. Just plug in the amount that corresponds to your filing method.  

There are limits to the standard deduction but not to itemized deductions. You could potentially end up with a $0 tax bill if you have enough itemized deductions.

You don't want to leave money on the table during tax time. I encourage you to work with your Certified Public Accountant to determine whether the standardized deduction works best for you.

Consult With Your Financial Professionals

While I do not prepare tax returns, as your CERTIFIED FINANCIAL PLANNER™ professional, I can help determine if there are any advantages to one method or the other regarding your long-term financial goals.

Consult with me as your CFP® professional, along with your tax preparation professional, to make the best decision for you and those you love. Together, we can effectively assess your financial goals to determine the best strategy for your situation.

You can schedule an appointment on my calendar, whether you need help with tax planning or want to take a look at your overall financial strategy.