Will itemized deductions benefit me?
To Itemize or Not, that is the question.
The video below will help explain whether or not income tax itemized deductions are better for you than the standard deduction.
One of the questions we sometimes get is whether or not a person should itemize deductions. Or we might have someone ask, “I have taken all this stuff to goodwill, why doesn’t that reduce my taxes?” And the answer is, it may or it may not.
When you file the return, you have the choice on whether to take itemized or standard deductions. Most tax software automatically takes whichever is largest based on what you filled in.
The standard deduction for 2024 for a married couple will be $29,200. That means that if you are married and file jointly, you probably will not itemize if Mortgage Interest plus Real Estate Taxes plus charitable contributions add up to less than $29,000. Also, keep in mind medical deductions may not be deductible at all.
Medical deductions have what is called a 7.5% floor . That means if a couple has a $80,000 adjusted gross income, their first $6000 in out of pocket medical expenses are not deductible . If all people have is copays and prescription copays, they will rarely be deductible. So the general rule is unless out of pocket medical is really high, do not waste the time tracking medical expenses.
Thus, the biggest itemized deductions are Mortgage Interest, RE Taxes, Sales Tax (or State Income Tax), and charitable contributions. Most people who don’t own their own home do not itemize unless they have very high charitable contributions. Similarly, those who have their house almost paid off rarely itemize.
Normally, I can tell pretty fast whether or not someone will benefit from itemizing or whether it will be close. I have worked for a firm that made me go tally up shoe boxes full of receipts for copays, when I knew all along they would not have enough medical expenses to itemize. Of course, they would charge the client the extra time to do that. Another firm was smart enough to let us move on and not waste time or the clients money when the answer was obvious.
Obviously, I will total things up if the client wants me to. However, I will tell them up front if it looks clear they don’t have enough to itemize. They can then make the decision whether they want to pay me to pursue it further.
Single filers, especially those who own their own home, are more likely to itemize, as their standard deduction is half of those filing as married filing jointly.
If you’re wondering about income tax itemized deductions, contact Derland Bahr, CPA at 254-432-5724.