The 2018 tax season saw major changes for most taxpayers due to the Tax Cuts and Jobs Act’s (TCJA) inaugural year. Many taxpayers found that they were no longer able to itemize deductions as they had been in years past. While there is little you can do to change your 2018 tax return, you may still be able to plan for 2019. Below are a few tips for how to go about it. But first, let’s look at some of the specific changes to itemized deductions.
TCJA Changes to Itemized Deductions
There will only be a slight increase in the standard deduction from 2018 to 2019, with the Single Filer’s standard deduction rising from $12,000 to $12,200 and Married Filing Jointly standard deduction from $24,000 to $24,400. For those taxpayers who are elderly or blind, the additional standard deduction is $1,300. This is increased to $1,650 if the taxpayer is unmarried.
So What Can I Deduct?
• Medical Expenses – If your qualified medical expenses exceed 7.5% of your Adjusted Gross Income (AGI),
then they are tax-deductible. These qualified expenses include things such as doctor visits, dental
visits, hospital costs, medical transportation, pharmaceuticals, and many more that are not reimbursed by
your insurance provider.
• Mortgage Interest – The interest that you pay on your principal and/or second residence is still tax-
deductible. However, the mortgage interest deduction is limited to the first $750,000 of home acquisition
indebtedness. There are other limitations to this that you can read more about here.
• Charitable Contributions – These deductions are still allowed, if you qualify to itemize your deductions.
• State, Local and Property Taxes – These deductions remain in place, but they are limited to a total of
$10,000 ($5,000 if you file Married Filing Separately).
What Are Some Strategies for Me?
If you found yourself not able to itemize your deductions in 2018, no worries! Here are a few strategies that can help you save time and money before the 2019 tax season rolls around.
1. Double down on your itemized deductions in one tax year and take the standard deduction in the next year.
This financial strategy can be accomplished in multiple ways.
• One way you can accomplish this goal is to make an extra house payment that will allow you to have
13 months of interest paid during the year. This prepayment can help you get one step closer to
itemizing this year.
• Another way you can accomplish this goal is to consider making larger charitable contributions this
year, and smaller ones in the next year. This would allow you to itemize your deductions this year
and take the standard deduction the next year.
2. Pay down your mortgage, especially if you can’t get tax-benefits from the mortgage interest.
• With the standard deduction being so high, you may find it very hard to get any tax-benefits from your home mortgage interest.If your mortgage interest is no longer helping you lower your taxes, you may consider paying off some of your mortgage debt by paying extra on the loan. While this may not directly affect your tax return, every extra payment you make will help you pay off your home loan quicker, in turn, saving you money down the road.
3. Make charitable donations out of your IRA.
• For those taxpayers who will be 70 ½ or older by year-end, you may consider making your charitable donations through your IRA’s required minimum distributions. These gifts will help offset the taxable portion of your required minimum distribution, thus causing your taxable income to be lower on your tax return. This strategy works well for those who are not able to itemize their charitable donations because they still fall below the standard deduction.
With the 2019 filing season right around the corner, it’s not too late to take advantage of some financial strategies to help you get the most out of your itemized deductions. Consult with your professional tax advisor to discuss what strategies may work best for you.
Robby Groves, CPA
Robby Groves, CPA is a Staff Accountant with GranthamPoole, specializing in corporate, individual and partnership taxation. For more information on the above article or any other TCJA or tax-related topics, please contact your GranthamPoole tax advisor or our Tax Services Team Leader, Melanie Woodrick, CPA at 601.499.2400 or firstname.lastname@example.org.
The above does not represent tax advice. Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.