By Kortney Christensen, CFP®, Executive Vice President, Director of Sales and MarketingPrint This Post
One of the most impactful aspects of the new tax law involves changes made to the standard and itemized deductions. While taxpayers can still choose to either take the standard deduction or to itemize, the decision-making math has changed. In 2018, the standard deduction amount will almost double to $12,000 for individual filers and $24,000 for married filing joint filers. This change is effective until 2025 and is indexed for inflation. Other changes to itemized deductions include:
- The ability to deduct state and local taxes (including income, property and sales taxes) will be limited to $10,000.
- Qualified medical and dental expenses can still be deducted, but the income threshold has been temporarily lowered in 2017 and 2018 to 7.5% of adjusted gross income (AGI). The income threshold will increase back to its current level of 10% of AGI starting in 2019.
- Starting in 2018, you will be able to deduct a higher level of charitable donations. The new rule increases what you can deduct from 50% of AGI to 60% of AGI.
- All miscellaneous itemized deductions are eliminated. These include the ability to deduct items such as tax software, tax preparation fees, unreimbursed employee expenses, losses on variable annuities and certain investment-related expenses.
- The ability to deduct casualty losses for things like a flood or fire will now be limited to only those losses which are incurred in a federally mandated disaster area.
- The 3% Pease limitation on itemized deductions for higher income individuals is repealed – good news for higher income individuals who still plan to itemize.
- There are also changes to the ability to deduct mortgage interest, which we will cover in more detail in a blog later this month.
While the IRS estimates that around 30% of individuals currently itemize, the combination of an increased standard deduction and new limits to itemizing will likely cause more taxpayers to choose to take the standard deduction.
Benjamin F. Edwards & Co. does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.