Q: I filled out my tax preparer’s organizer. As usual, my pile of documents included our property taxes, medical expenses, mortgage interest and donations, plus a few other things. But, I just got an email from my tax person saying I really didn’t need to gather all of that stuff. Why is that?
A: As they say, old habits die hard! It is true, if you are like most people, your effort to gather all of those receipts and statements to document your itemized deductions is probably no longer necessary. Since 2018, under the current tax law, they basically doubled the standard deduction. This effectively eliminated the need for most taxpayers to even think about claiming itemized deductions.
For example, for those who file as a married couple, the standard deduction for 2022 is $27,700. If you both happen to be over age 65, it jumps to $30,700. This dollar amount is the bogey to compare to your level of itemized deductions.
There are four main categories of itemized deductions to consider. You might not even come close to needing to itemize your deductions. The categories are the taxes you paid, your mortgage interest, your donations to charity, and your medical and dental expenses. If you are moderately good at math, you can probably tally them all up in your head to see if gathering up all of the necessary documentation is worth your effort.
First, add up the property taxes and state income taxes you paid last year. Remember, though, the maximum for this category is capped at $10,000. Next, add in the amount of mortgage interest you paid last year, if any. Then, total up your cash and in-kind donations made to charities. Finally, there’s one more complex category. Add up your medical and dental expenses. Do some mental math to see if they exceed 7.5% of your adjusted gross income. For example, let’s say your adjusted gross income is $100,000. Unless these expenses exceed $7,500, none of your medical and dental expenses will be tax deductible.
The bottom line is this. If you are married, don’t have a mortgage, or don’t give away a lot and you don’t have big medical and dental expenses, it’s highly unlikely your itemized deductions will exceed your automatic standard deduction. On the other hand, certain single filers, and even some married filers, might still end up itemizing their deductions. It only takes a little understanding to figure out if you can avoid the tax gathering work or not. According to recent stats, only about 10% to 15% of all taxpayers itemize their deductions. If you don’t fall into this group, welcome to the world of tax simplicity!
