Standard -vs- Itemized Deductions

When computing Taxable Income on page 2 of IRS Form 1040, the taxpayer has the option of taking the larger amount of either the sum of their actual itemized expenses, or a fixed amount which the IRS considers 'standard' for that taxpayer's filing status.

NOTE: If the taxpayer were to claim itemized deductions when the standard deduction is higher, the IRS will re-compute their return using the higher standard deduction amount, and change their return so they owe less, or get a larger refund.

If the taxpayer were to claim the standard deduction when his/her itemized deductions would have been a larger amount, the IRS has no way to know that so the standard deduction would remain the taxpayer's choice.

All too often, we present the low itemized deduction amount in a negative light, such as "You don't have enough deductions to claim them," or something similar. Invariably, you can see disappointment on the taxpayer's face when they hear that because they feel (incorrectly) they are 'losing out' on a way to lower their tax bill.

Instead, we should be presenting the standard deduction in a positive light, such as "The standard deduction is more than your itemized deductions, so claiming the standard deduction will give you the lowest tax liability," or something similar. We should always phrase things in a way to reinforce the concept that we strive to achieve 'the best possible legal outcome' for our taxpayers.

Standard Deductions

Data from IRS Pub 4012 pg F-1 & F-2.

Itemized Deductions TY2018

NOTE: The deductions listed below are typical, but not necessarily a complete list. If in doubt about any aspect of itemized deductions, consult IRS Pub 17 page 142.

Medical and Dental Expenses

  • Only the amount which exceeds 7.5% of the AGI is deductable. (For example, if the AGI is $24,000, the first $1,800 of expenses is NOT deductable. Only the amount over $1,800 is deductable.)
  • Medical mileage can be claimed at 18 cents/mile.

Taxes Paid

  • Real Estate
  • General Sales
  • Vehicle(s) Registration Fee
Starting Jan 1, 2018, there is a combined limitation for an individual of $10,000 ($5,000 if Married Filing Separately) on real property taxes, personal property taxes, and income taxes or general sales taxes that are unrelated to a business.

Interest Paid

  • Home Mortgage (Generally... interest paid on a loan secured by a main home or second home. The loan may be a mortgage to buy the home, a second mortgage, a line of credit, or a home equity loan.)
  • Starting Jan 1, 2018, the deduction for home equity debt is disallowed as a mortgage interest deduction unless the home equity debt was used to build, buy, or improve by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home, and meet other requirements.
  • Starting Jan 1, 2018, Private Mortgage Insurance (PMI) premiums are disallowed as a mortgage interest deduction.

Gifts to Charity

  • Cash gifts
  • Non-cash gifts of items such as clothing, furnishings, household items, vehicles, boats, just about anything of value which was accepted by the charity. The value of such donations should be declared on a receipt given by the charity, and not some number made up in the taxpayers head on the spur of the moment.
  • Charitable miles driven to do the work of a charity can be claimed at 14 cents/mile. This does not include the miles driven to make a donation.

Casualty and Theft Losses

  • Casualty and theft losses are out of scope of VITA/TCE (Ref IRS Pub 4012, page F-3.) However, it may be beneficial to discuss with the taxpayer the value of the loss compared with the cost of paying someone else to prepare his/her tax return. If the loss is the same or less than the tax preparation fee, it would make sense for the taxpayer ignore the loss and have us prepare the return for free. Use the Casualty Loss Screening Tool for more tips to help the taxpayer deal with the loss.

Job Expenses & Certain Miscellaneous Deductions
  • Starting Jan 1, 2018, miscellaneous itemized deductions are disallowed for Job Expenses and Certain Miscellaneous Deductions subject to the 2% limitation. For more information, refer to the instructions for Schedule A and IRS Pub 17.