Preface: Since the TCJA tax legislative update beginning with 2018, individual tax filers on Form 1040 have revised attributes including a higher standard deductions, therefore changing the applicability for itemizing.
The threshold for the Form 1040 standard deduction you are allowed in the current year depends on the filing status of your tax return for the year.
For those who are single (or married filing separately), the standard deduction for 2020 is increasing $200 to $12,400. If you file as a head of household, your standard deduction will be increasing $300 to $18,650. For married couples filing jointly, the standard deduction is increasing by $400, up to $24,800 for the tax year 2020.
This the legislated tax rule increase in the standard deduction for 2020, will see more people choosing this tax feature. But for those still interested in itemizing, here are a few key highlights.
Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses from a Federally declared disaster. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.
You would usually benefit by itemizing on your individual tax filing if you:
• Can’t use the standard deduction or the amount you can claim is limited
• Had large uninsured medical and dental expenses
• Paid interest or taxes on your home
• Had large “other” deductions
• Had large uninsured casualty or theft losses from a Federally declared disaster
• Made large contributions to qualified charities
The higher standard deduction under Tax Reform means fewer taxpayers are itemizing their deductions. However, taxpayers may have an opportunity to itemize this year by keeping these tips in mind:
Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited. This deduction is limited to a combined, total deduction of $10,000. It is $5,000 if married filing separately. Any state and local taxes paid above this amount can’t be deducted.
Refinancing a home. The deduction for mortgage interest is also limited. It’s limited to interest paid on a loan secured by the taxpayer’s main home or second home. For homeowners who choose to refinance, they must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in the next bullet under “buying a home.”
Buying a home. People who buy a new home this year can only deduct mortgage interest they pay on a total of $750,000 in qualifying debt for a first and second home. It’s $375,000 if married filing separately. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.
Donating items and deducting money. Many taxpayers often find unused items in good condition they can donate to a qualified charity. These donations may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations.
Deducting mileage for charity. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2020.
Summary: Itemizing deductions for your 1040 tax filings is best performed by an experienced tax accountant for optimal tax benefits. If you think itemizing for your individual tax filing is the right choice for your 2020 taxes contact your trusted tax accountant.