Recent law changes make the standard deduction a better deal for many individuals who usually itemize their outlays for things like charitable contributions and mortgage interest. Those changes require them to do some precise calculations to determine whether to base end-of-year strategies on claiming the standard deduction or itemizing.
Here’s the ultimate test for when it’s worthwhile to forget the no-questions-asked standard deduction and do the record-keeping required of itemizers: Only when total itemized deductions surpass the standard deduction that you’re entitled to claim anyway.
There’s no one-size-fits-all answer. The standard deduction depends on: your filing status (the category a person falls into as a filer, such as married filing jointly, married filing separately, single, or head of household); whether you’re 65 or older, blind; and whether an exemption can be claimed for you by another taxpayer. The standard deduction amounts are adjusted each year for inflation.
Couples who file separate returns must be consistent in claiming the standard deduction or itemized deductions. If one spouse itemizes, the other must also itemize and can’t claim the standard deduction.
The $12,600 deduction also is available to someone who qualifies as a “surviving spouse.” This is the IRS term for a widow or widower who has a dependent child living with him or her and is entitled to use joint-return rates for two years after the death of a spouse in 2013 or 2014. This is a frequently overlooked break. However, all is not lost for someone who fails to qualify as a surviving spouse. He or she might be able to use the $9,250 deduction for head of household instead of the $6,300 deduction for a single person. For example, a widow whose child lives with her might qualify as a head of household.
Extra-large standard deductions for elderly and blind. The deductions for individuals who have reached age 65 by the end of 2015 increase by $1,250 for a married person (whether filing jointly or separately, including a surviving spouse) and $1,550 for someone whose filing status is single or head of household. Persons considered blind are entitled to those additional amounts or double those amounts if they’re both 65 and blind.
The deduction rises from $6,300 to $7,850 for a single person who’s age 65 or older. It goes from $6,300 to $9,400 for a single person who’s at least 65 and blind. On a joint return, depending on whether one or both spouses are at least 65, it increases from $12,600 to $13,850 or $15,100 (with additional $1,250 amounts available for blindness).
Complex rules for those who itemize. Complications abound because there are nondeductible floors for several categories of itemized deductibles, with all of the floors pegged to adjusted gross income (AGI).
Itemizers continue to enjoy full deductions for: interest on most home mortgages, charitable contributions, state and local income taxes or sales taxes (but not both), and real estate taxes.
Three categories of expenses rate only partial write-offs: medical expenses, casualty and theft losses, and miscellaneous expenses.
First: Medical expenses not covered by insurance or otherwise reimbursed are deductible only for the amount above 10 percent of AGI (7.5 percent for individuals 65 or older through the end of 2016).
Second: Casualty and theft losses not covered by insurance or otherwise reimbursed are allowable only to the extent such losses exceed $100 (for each casualty or theft), plus 10 percent of AGI.
Third: There’s a limitation on deductions for most miscellaneous expenses. This category includes write-offs like: fees for return preparation and tax planning and investment advice, job-hunting costs, safe-deposit box rentals, and unreimbursed employee expenses, such as dues for unions and professional associations. Miscellaneous expenses are deductible only for the portion in excess of 2 percent of AGI.
How do these partial write-offs affect individuals? Someone with an AGI of $100,000 forfeits any deduction for the first $10,000 of most casualty losses, the first $10,000 of medical expenses, and the first $2,000 of miscellaneous expenses. Exceptions to the 2 percent floor for miscellaneous expenses include gambling losses, but such losses are allowable just to the extent of gambling winnings.
There’s no deduction for most payments of interest on consumer loans – car payments and credit-card charges, for example. There’s a limited exception for interest on student loans, which is one of those “above the line” subtractions to arrive at AGI, not an itemized deduction.
