Standard Deduction or Itemized Expenses?

You may have heard, “if you do not own a business, ‘take the standard deduction.’” That is a myth and every taxpayer, business or not, may itemize deductions with advantages. Just because a taxpayer cannot deduct every expense does not mean that a year’s expenses cannot make a tax-break.

Another falsity is that itemizing means saving every receipt. That is only true for businesses, and even then, the taxpayer is granted estimated deductibles for things like gas and travel expenses. The IRS allows a taxpayer without a business who paid property tax, mortgage interest, charity, and other expenses, to deduct from Adjusted Gross Income to get to taxable income.

When should a taxpayer look into itemizing deductions on Schedule A? If a taxpayer finds that a year has brought hardship through medical expenses, burglaries, property taxes, other state taxes, etc. If the taxpayer has totaled deductible expenses exceeding the standard deduction, then itemizing deductions will lessen taxable income.

For example, the interest rates of homes are rising, and most homeowners easily see a payment of $3,000 in mortgage interest. A taxpayer does not save receipts on these interest payments but interest is memorialized on Form 1098, which is received in the mail. Taxpayer's with more than one home or a vacation home may deduct for each home's property tax (limited to two homes). The sales tax paid on a new boat? That may be itemizable too, at a general tax rate that the IRS publishes. Keep in mind the Tax Cuts and Jobs Act ("TCJA") limits deductible state taxes to $10,000. In addition, any charitable deductions may add to itemized deductions. (All charitable deductions require substantiation (receipt) from qualified 501(c)(3) organization(s)).

It adds up: If you couple a taxpayer’s hard year of mortgage interest, medical expenses, destruction(s) of property, and charity, that taxpayer is likely on the road to deducting taxable income well above the standard deduction.

Contact Pugh Tax For Free Consultation!

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Anthony Pugh, JD, MBA

Telephone: 616-606-8305

Email: anthpugh@pughtax.net