One of the biggest decisions people make at tax time is whether to itemize or take the standard deduction. Most people take the standard deduction, according to IRS data, but tax pros warn that if you’re not careful, taking the standard deduction could actually stick you with a larger tax bill.
How the standard deduction works
The standard deduction is basically a flat-dollar, no-questions-asked reduction in your adjusted gross income. The standard deduction you qualify for depends on your filing status.
|Filing status||2018 tax year||2019 tax year|
|Married, filing jointly||$24,000||$24,400|
|Married, filing separately||$12,000||$12,200|
|Head of household||$18,000||$18,350|
- People over 65 or who are blind get a bigger standard deduction.
- The other option — itemizing — lets you cut your taxable income by taking any of the hundreds of available tax deductions you qualify for. If tax deductions were a restaurant, the standard deduction is a prix fixe dinner and itemizing is like ordering from the a la carte menu.
- Generally, people itemize because their itemized deductions add up to more than the standard deduction. Because remember: the more you can deduct, the less you’ll pay in taxes.
When the standard deduction could cost you
1. You own a house
Homeownership probably means you pay mortgage interest and property taxes — and both are deductible. Those deductions could add up to way more than what the standard deduction would give you, which means you could leave money on the table if you take the standard deduction, says Randy Malueg, a CPA in Escanaba, Michigan.
2. You’re in a high tax bracket
Each deduction is worth more to someone in a higher tax bracket than it is to someone in a lower bracket, says Ivan Alvarez, a CPA in Dallas. For example, a $1,000 tax deduction can save someone in the 12% bracket $120 in taxes, but it can save someone in the 35% bracket $350. (Which tax bracket am I in?) Assuming you’ve got enough things to deduct, this can make it worth ditching the standard deduction and spending the extra time digging up those receipts so you can itemize.
“As a general rule, if you have a dual-income household and you’re earning $80,000 or more, you should consider itemizing and you should contact a professional to see if that’s worth it for you,” Alvarez says.
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3. You had a lot of medical bills
You can deduct the portion of unreimbursed medical bills that exceeds 7.5% of your adjusted gross income. So if your adjusted gross income is $40,000, anything beyond the first $3,000 of unreimbursed medical bills could be deductible. Again, your itemized deductions need to add up to more than the standard deduction in order for itemizing to become the better option, but big medical bills could make that happen.
“I remember when I was in college and I was dead broke. There was a year where I had significant dental work and I was surprised that it was actually worth it to itemize,” Alvarez said.
4. You donated a lot to charity
You’ll need proof of donations, but they could be another game-changer that makes the standard deduction not worth taking, Malueg says.
“I have my people do a quick little check that says, ‘OK, how much did you pay in state income tax on your W-2s, how much have you paid for real estate tax and how much have you paid for mortgage interest?’ If those are getting you close to that $12,000 number, then we want to look at itemizing and do charitable and medical [deductions] on top of it,” he says.
In 2018, the standard deduction got a lot bigger: $12,000 for single filers and $24,000 for joint filers. But you’ll still need to consider whether taking the standard deduction — while easier than itemizing — is right for you.
“’Just do it and be done, I don’t want to spend any more time on it’ — you’ve got those people,” Malueg says. “But most people very much want to save money, and most people don’t want to pay the government any more than they have to.”