Though it may seem like it's too early to be thinking about tax season, the reality is that it'll be here before we know it. And it's never too soon to start exploring strategies that could lower your tax burden.
One big question you may be contemplating for the 2020 tax season is whether to itemize on your return or go with the standard deduction. And if you opt for the latter, you'll be in good company. Tax prep service Jackson Hewitt reports that 79% of tax filers plan to take the standard deduction in 2020. That's a modest jump from the 75% who took it in 2019. The question is: Does the standard deduction make sense for you?
IMAGE SOURCE: GETTY IMAGES.
Why itemizing may no longer make sense
You have two choices when filing a U.S. tax return -- you can claim the standard deduction, which exempts a preset amount of your income from taxes based on your filing status, or you can add up your allowable deductions and itemize them instead.
Itemizing makes sense when the sum of your specific deductions exceeds the standard deduction, because that gives you a bigger tax break. But because 2018 tax overhaul nearly doubled the standard deductions (and limited or eliminated others), itemizing no longer makes less sense for many filers who used to benefit from it.
To be clear, though, itemizing was never the most popular choice: a majority of tax-filers took the standard deduction prior to the 2018 changes. But other shifts within the tax code -- such as the one that caps the state and local tax (SALT) deduction -- leave it harder to make a case from itemizing.
Should you take the standard deduction?
Here's what the standard deduction looks like for the 2020 tax year:
|
Filing Status |
2020 Standard Deduction |
|---|---|
|
Single or married filing separately |
$12,400 |
|
Head of household |
$18,650 |
|
Married filing jointly |
$24,800 |
DATA SOURCE: IRS.
If you're not sure whether you should go with the standard deduction in 2020 versus itemize, crunch the numbers. If you pay a lot of mortgage interest, will max out your $10,000 SALT deduction, donate a lot to charity, or have heavy medical expenses to write off, then itemizing could make sense for your household. But if you're married filing jointly, for example, and your total itemized deductions only add up to $22,000, it doesn't make sense to itemize, because the standard deduction of $24,800 that you're entitled to is larger.
As Mark Steber, chief tax officer at Jackson Hewitt, explains:
When taxes are being prepared, it benefits the taxpayer to weigh the pros and cons of itemizing or taking the standard deduction. While it is financially advantageous for more people to take the standard deduction than it was two years ago, many people are on the cusp, so be sure to compare both scenarios before filing.
And there you have it: Choosing between the standard deduction and itemizing really isn't so difficult once you have all of your numbers in front of you. So even though the 2020 tax deadline is months away, it can't hurt to start doing some math and seeing where it leads you.
