Taxes Part 2: To Itemize or Not To Itemize?
With the IRS filing deadline (April 17) less than two weeks away, it’s time to get started on your taxes (if you have not already). One question you’ll need to answer right away: Should you itemize, or simply take the standard deduction?
Itemizing means adding up your 2017 allowable expenses and deducting them from your income, thus lowering your tax bill. Itemizing takes more time, but if your deductions exceed the standard deduction, you’ll save money.
First, consider the standard deduction that applies. For single taxpayers filing this year, it’s $6,350; for married taxpayers filing a joint return, $12,700; for head of household taxpayers, $9,350. (They’re even higher for people who are blind or over age 65.)
Next, consider what you can deduct. Deductible expenses include:
Mortgage payments. Taxpayers with a mortgage or home equity loan are most likely to benefit from itemizing, as you can deduct mortgage interest plus any points paid if you purchased your home in 2017. You should have received a Form 1098, Mortgage Interest Statement, from your lender in January in the mail. (Note that you can’t deduct the entire amount of your mortgage payments – just the interest portion.)
State and local taxes. Check your W-2 to see how much income tax you paid to your state, city or county; those are deductible up to a cap of $10,000. (There’s no state income tax in Texas, but if you own a home, you paid property taxes to your city and county.)
Charitable donations. You can deduct these only if you itemize. This includes cash donations to charities like the Red Cross, churches, synagogues and other nonprofit organizations, and you’ll need to have a receipt. (While it’s a very nice thing to do, a donation to a friend’s GoFundMe account isn’t deductible.) You can also deduct the current value of donated furniture, clothing and household items. Generally, you don’t deduct what you paid when you bought the item; instead, estimate what it would sell for in a thrift shop.
Medical expenses. Very few taxpayers take this, because only those expenses in excess of 7.5 percent of adjusted gross income are deductible. For example, if your adjusted gross income is $50,000 in 2017, the first $3,500 of your expenses doesn’t count.
Miscellaneous tax deductions. If you inherited money from a relative’s IRA, or if you had significant job-related expenses, you might qualify for additional deductions. Visit IRS.gov for more information.
Remember: when you itemize, your taxes get more complicated; read the fine print. Tax preparation software, like TurboTax®, will walk you through the details. (Click here
to learn more about filing fee discounts offered by InTouch Credit Union and TurboTax®.)