Time to start thinking about your 2018 tax return in the first year of the Trump-Republican tax reform.
Whether the changes help or hurt you, there’s one thing that seems nearly certain – a lot fewer filers are going to be itemizing.
The standard deduction has nearly doubled, from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married filers filing jointly. Theoretically, far more taxpayers will be discouraged from itemizing, leaving a lot fewer deductions for IRS workers to verify.
Even with the lower standard deduction, only about 30 percent took the time to itemize last year. With the big increases, it could go down to single digits.
But the increased standard deductions aren’t the only reason taxpayers might skip itemization. Many deductions have been reduced or eliminated.
The SALT (state and local tax) deduction is capped this year at $10,000, whereas it was previously unlimited. The SALT deduction has long been one of the most substantial for many filers (particularly in high property tax states).
Several other deductions are simply gone – including the personal exemption, the alimony deduction and the deduction for moving expenses. Deductions for a home office have been severely restricted.
The mortgage interest deduction is still intact, but is now limited to the first $750,000 in mortgage value (down from $1 million). Most homeowners won’t be impacted by this change, since the average U.S. mortgage is well below $750,000.
No changes to deductions on charitable contributions, either, which means that if you were extra generous this year, you can use that to your advantage.
If you manage to rack up more than $12,000 in deductible expenses as a single tax filer, or more than $24,000 worth as a joint filer, then going to the trouble of itemizing could get you a smaller tax bill.
A couple filing jointly whose deductible expenses equaled $20,000 would have benefited from itemizing last year, but if their deductible expenses remain at the same level, it no longer makes a whole lot of sense.
Even if it’s really close, the tax savings you stand to gain by itemizing may not be worth the added hassle. Itemizing also increases the risk of being audited, so taking the standard deduction might be worthwhile if it’s just a matter of a few bucks.
The standard deduction could end up saving you money on tax preparation fees – and that’s reason enough to go this route.
Before the legislation, the Trump administration and Republican-led Congress touted a simplified, postcard-sized tax return.
However, critics say that while the tax return is shorter, confusion over deductions will make it more complicated than ever.