Analyzing Standard vs. Itemized Deductions for Individuals

November 27, 2018 | Lauren McCubbin

Many taxpayers are analyzing what the 2017 Tax Cuts and Jobs Act means for their tax position. One consideration taxpayers will face will be to utilize the standard deduction amount or itemize deductions. 

In prior years, the standard deduction was $12,700 for married filing joint filers and $6,350 for single filers. After the tax reform in 2017, the amount nearly doubled to $24,000 for married filing joint filers and $12,000 for single filers. The increase can be beneficial for taxpayers that have not been able to qualify to itemize deductions. However, the new thresholds might make it difficult to exceed for those who have been able to itemize in years past. 

One way to take advantage of itemization is to plan effectively to bundle certain deductions in one year. This means the taxpayer would choose to aggregate certain activities into one year that would normally have occurred over multiple years. Charitable considerations would be a good place to look for bundling opportunities. The taxpayer could maximize the amount claimed when itemizing by making relatively large contributions in one year instead of smaller contributions spread over multiple years. 

It is important to note that the tax reform also had an impact on the itemized state income and property tax  deductions. Prior to 2018, there was no limit on these itemized deductions; whereas now there is a max deduction of $10,000 each year. Additionally, prior to 2018, miscellaneous deductions were limited to 2% of the taxpayer’s adjusted gross income and now no deduction is allowed.

Being aware of the areas where deductions are limited can help when planning to itemize, and thus provide the taxpayer with additional tax savings in the years bundling is utilized.  Download our tax reform infographic for a summary of how the new changes will affect individuals.