For the 2018 tax year, following the Tax Cuts and Jobs Act of 2018 the IRS will reduce the types of allowable deductible expenses for itemized tax returns. Simultaneously, they have removed the phase out limitation for higher wage earners. They also roughly doubled the standard deductions for single and married filers. So how do you determine the best way to file?
The IRS website suggests that everyone do a “Paycheck Checkup” to see if the correct amount is being withheld from your paycheck. This is particularly important if you are part of a two-income family, you are working two or more jobs or are a seasonal worker, if you have children and plan to use the Child Tax Credit or you have older dependents, if you itemized last tax year, if you are a large income earner or received a large refund last year.
As of 2018, there are new withholding tables. Both the tax rates and tax brackets have changed and how the deduction and personal exemptions are applied has also changed. The personal exemption deductions for yourself, your spouse or your dependents have been eliminated as of 2018. To help recoup for the loss of this, the standard deduction amount has doubled for nearly all filers.
According to the IRS website, you should itemize if your allowable itemized deductions exceed your standard deduction. They provide a tool called an Interactive Tax Assistant which can help figure out what your standard deduction is – you need your age, your spouse’s age, and your filing status plus basic income information including your adjusted gross income. Input all this into the tool, and the information should help you make the decision about whether to itemize or simply use the standard deduction.
There are certain taxpayers who can’t use a standard deduction. Among them are, a married taxpayer who elects to file married filing separately and whose spouse itemizes, a person who files a tax return for a period of less than 12 months (because of a change in his/her accounting period,) a person who is a non-resident alien or dual status alien, or an estate or trust, trust fund or partnership.
Some key questions that can also help you determine if you need to itemize are: Did you have large uninsured medical or dental expenses this year? Did you pay interest and taxes on your home? Did you have large unreimbursed employee business expenses, large uninsured casualty or theft losses or did you make large contributions to qualified charities?
For more information on this topic see our article: Should taxpayers itemize or go with the standard deduction?