Tax attorney Mark Kohler breaks down when to itemize versus take the standard deduction. The standard deduction is $12,000 for single filers and $24,000 for married couples. Itemized deductions include mortgage interest up to $750,000, charitable gifts, medical expenses over 7.5% of income, and state and local taxes capped at $10,000.
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Hey, Mark Kohler here and we're going to talk about standard deduction versus itemizing. Now, for everybody out there, you're an American, you're going to have to file a 1040 tax return. And the rules have changed starting in 2018 until 2023. So you want to know the difference here because it could save you big time on your tax return. Alright, the general rule is you want to add up your itemized deductions and compare them against your standard deduction. Whichever one's greater, that's the one you want to take. Now you're going to find out pretty quickly that my itemized deductions aren't that great. So you're going to generally stick with standard deductions and not waste your time adding those up. But you want to know the rules so that you know when it's time to take that extra effort and figure out which one's better. Now the rules are now in 2018, 2019 until the foreseeable future in 2023 they may get all changed up again in $12,000 standard deduction if you're single, $24,000 if you're married, filing joint. Now that's where you're going to fall on the standard deduction spectrum. And then again, compare it against the itemized deductions. Okay, now there's five itemized deductions that you want to track. The first one is medical. Now what medical is going to include is all of your out of pocket medical expenses. Not your medical insurance, but out of pocket medical like dental, eyes, copays, deductibles, prescription drugs, acupuncture, massage therapy, tons of stuff. You want to get over to IRS Publication 502 to look at what medical expenses might get thrown into this bucket. Now the math is you're going to add up all those expenses and the expenses over and above 7.5% of your adjusted gross income go into the equation. So for example, if you make $100,000 adjusted gross income, you minus 7.5%. So 7,500 and anything above that would be a deductible medical expense. So if you had $8,000 in medical exp, you could deduct $500 in medical expenses. I know, it's kind of crappy. I'm not a big fan for my business owner videos. You know, I love the HSA and the hra. Watch those videos. But that's the medical expense. You want to add that up. Anything over 7.5% of your AGI number two home mortgage interest. Now this one got a little more complicated as well. And I've got a separate YouTube video on home mortgage interest. But here's the general rule. You get to deduct the interest, an itemized deduction on your primary resident mortgage only. And in fact, it's acquisition indebtedness. You cannot write off the HELOC interest. You can't write off interest on the second home or the RV or the boat. It's only interest on your primary home acquisition and deadness. So if you got a HELOC to remodel the kitchen, doesn't matter. It's only the interest on the acquisition and deadness. So it's kind of crappy. And it's limited to $750,000 of mortgages, so. Or one mortgage. I know it gets crazy. So not everybody out there has a $750,000 mortgage. So it's not going to affect you probably, and that's okay. But add up that interest and that goes into the equation as well for your total itemized deductions. Number three is charity. Now, we all give something to charity once in a while and you may take some clothes down to Goodwill or Salvation army, get a receipt. The, the first $500 are easy, Schmeezy. Those are great, great little write off. If you give away more in tithes to your church, or you write a big check to the United Way, or you actually give donated property, maybe a car, to NPR or something like that, then you need a receipt and there's more forms involved. But you want to add up all your charitable contributions and that goes into the bucket of itemized deductions. Now, under the Tax Cuts and Jobs act, this was also changed. It was actually increased so you could give up to 60% of your AGI. So if you're a huge donor one year for some reason, you actually can give more to charity and add it into your itemized deduction bucket. Now, number four used to be this casualty and theft loss thing, which got gutted under the Tax Cuts and Jobs Act. Now, remember where the government giveth, the government taketh away. So while they made a bigger standard deduction, they hammered these itemized deductions in a a lot of ways. So this casualty, theft loss thing was basically if a tornado hit your house and anything the insurance didn't cover, you were able to take a write off for that. Or if someone broke into your home and caused some damage or a tree fell on your house from next door, whatever that went into this bucket, well, that deduction is now gone. The Only deduction you can take is if the federal government declares the disaster a national federal disaster area, then you can qualify for the loss that may occur over and above your insurance. So talk to your accountant if that's the case. Now the last one I want to talk about number five is salt, the state and local tax deduction. This is a big one that got again gutted under the Tax Cuts and Jobs Act. It's affecting a lot of people. Basically you were able to deduct all of your state and local taxes, maybe your property taxes or the taxes you paid your state, which was great. Well, now it's limited in total to a maximum amount of $10,000. So if you were in California or New York or Illinois and had $50,000 in state tax, not to mention your property taxes, it's limited to $10,000. Ouch. So this is where there's a little readjustment of the middle income tax bracket. And those that are maybe making more money might pay more in taxes. So you want to be careful with that and make sure you realize what you're getting into when you get into this itemized deduction equation. Now those are the big five. But I'm not going to mention the miscellaneous itemized deduction which was greater than 2% of your AGI kind of thing. It's gone entirely, which was unreimbursed. Employee expenses, tax prep fees, investment expenses. No longer a write off under itemized deductions. But what this means again is summary is that you want to look at all your itemized deductions, add them up, work with your accountant or your tax prep software, plug it all in and if you're on that borderline, it's worth doing. If you know that the item, the standard deduction is going to be bigger than itemized, then obviously go that direction and don't waste your time. Thanks so much for watching that video
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