What do you mean I can’t deduct all the clothes I “Konmari-ed?!?”
If you recently watched Tidying Up with Marie Kondo and purged your home of everything that wasn’t “sparking joy,” you may be wondering what to do with the stack of donation receipts you’ve collected. If you’re under the Standard Deduction amount the answer may be “nothing.” Why? Read on.
What even is the Standard Deduction and why should I care?
In the American tax system we don’t pay taxes on every dollar we earn, we use deductions to reduce the amount of income that is taxed. There are all kinds of deductions available to taxpayers, but not all deductions will apply to everyone’s return. For those of us who don’t donate extravagant amounts to charity, haven’t yet purchased a home, or accrued large medical bills there is a “one size fits all” amount called the Standard Deduction.
In past years the Standard Deduction amount had hung out around $6,000 for single filers and $12,000 for married couples filing jointly with small increases year over year to account for inflation. If you had more than the standard amount in taxes, interest, donations, etc., then you would itemize your deductions to claim the higher amount.
Double the Funds
The recent tax reform shot the Standard Deduction amounts up to over $12,000 for single and to $24,000 for married filing jointly. That’s a big jump! So, what will that do to your bottom line? As with all things tax, it depends, but here’s an example:
In 2017, you, a single taxpayer, paid $9,000 worth of interest on your mortgage. You also made $1,000 in donations to various charities. Based on this, you will itemize your deductions because the $10,000 you spent is higher than the $6,300 Standard Deduction. Come 2018, you paid the same interest and made the same donations, but now you fall short of the $12,700 Standard Deduction. You get an additional $2,700 off your taxable income by taking the Standard over Itemized Deductions.
Whether you itemize your deductions or use the Standard depends on your unique tax situation. We can help guide you through the process.
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