It's that time of year when many of us have taxes on the brain, and if you haven't started to tackle your 2019 return, now's the time to get moving. Last year's taxes are due on April 15, and while you can request an extension if you're not ready, doing so will only give you extra time to submit your tax return; it won't give you extra time to pay the IRS if you owe money.
Now when it comes to filing your taxes, you have two options for claiming deductions: You can take the standard deduction as dictated by the IRS, or you can choose to itemize on your return in the hopes that you'll snag a larger tax break in the process. Each year, the majority of tax-filers choose the former and opt for the standard deduction, and according to a new survey by Offers.com, it looks like this year will be no different. In fact, 66% of filers are planning to take the standard deduction on their 2019 returns. But whether you should do the same may be a different story.
IMAGE SOURCE: GETTY IMAGES.
Stick to the standard deduction or itemize?
The Tax Cuts and Jobs Act of late 2017 raised the standard deduction significantly, and it's gone up from year to year ever since. As such, it makes sense for most filers to go with the standard deduction rather than itemize, since there's a good chance it'll make for the larger tax break.
But that doesn't mean itemizing won't make sense for some people, and if you happen to pay a lot of mortgage interest or property taxes, it could benefit you to go that route. Of course, to see if itemizing actually makes sense, all you really need to do is total your deductions and see if that number exceeds the standard deduction you're entitled to. It's really that simple.
For the 2019 tax year (which, remember, is the tax year you're filing a return for this year), the standard deduction is:
- $12,200 for singles and married couples filing separately.
- $18,350 for heads of household.
- $24,400 for married couples filing jointly.
Now, let's say you're single, you paid $8,000 in mortgage interest last year, and you have another $10,000 in state and local taxes to deduct (which is the cap for that deduction). That's $18,000 of income you get to exempt from taxes by itemizing on your return. If you were to go with the standard deduction, you'd exempt only $12,200, which is why it always pays to run your numbers before making your decision.
Will itemizing increase my chances of an audit?
Some people shy away from itemizing on their taxes because they're worried that claiming those deductions will increase their chances of an audit. But actually, that only applies if your deductions aren't accurate, or if they appear truly disproportionate to your income.
Imagine you report $60,000 of income for 2019, but you also report $15,000 in mortgage interest. That's an awfully expensive home loan for someone with that level of earnings, which could cause the IRS to dig deeper and ask questions. Similarly, if you claim exactly $10,000 in medical expenses as a deduction, that could raise a red flag, since it's unusual that your total spending would amount to such a clean, round number. But as long as you claim legitimate deductions and have documentation on hand to support them, you shouldn't worry about itemizing if that's what makes the most financial sense.
One final thing: If you're right on the cusp of itemizing versus claiming the standard deduction, it could pay to go with the latter to avoid the hassle of having to gather documentation in support of your claims. For example, if you're a single tax filer with $12,500 in itemized deductions, you get to exempt an extra $300 from taxes if you don't stick with the standard deduction. But if your tax rate is 24%, that really only saves you $72, so if it'll take you a long time to round up receipts and crunch those numbers, you may just decide that itemizing isn't worth it. But if you stand to save a lot of money by itemizing, then it certainly pays to give it a go.
