With all the changes in the tax law overhaul, one area of interest to most taxpayers is the best approach to deductions on their returns. After all, most taxpayers would like to take the maximum amount of deductions in order to reduce taxable income and so their taxes.
For many taxpayers, the answer is simple. The new standard deduction is much larger than the old standard deduction and does not require the taxpayer to file an itemization of deductions. Many of the usual itemized deductions have been curtailed or eliminated entirely. As an additional benefit, if the taxpayer has qualified business income, that deduction may be taken even if the taxpayer doesn’t itemize. This means the standard deduction makes it easier and faster to prepare the return – what’s not to like?
However, many taxpayers have significant deductions, taking into account mortgage interest, charitable gifts, medical expenses and other items which exceed the limits of the standard deduction. These taxpayers may also include the capped limits for state and local taxes as well as the qualified business deduction. In such case, itemizing is clearly the way to go and allows for a greater deduction than the standard deduction may provide.
Some leverage in terms of deductions may be obtained by alternating years between using the standard deduction and itemizing by grouping deductions in one calendar year. This makes it easier for taxpayers to make the most of their deductions through straightforward planning to account for deductions when and where they prove most beneficial.
Finally, it is important to keep in mind the other items that may reduce taxable income – the above the line deductions such as qualified contributions to retirement plans, the self-employment tax deduction and the like. With a little thought and attention, taxpayers can make the most of their situation.