Julie A. Wagner, CPA – Marshall, Wagner & Associates, P.A.
When Congress initiated our modern income tax system with the 16th Amendment to the Constitution in 1913, no one envisioned the massive system of red tape and intricate rules that we have today. As our system grew after World War II, Congress realized that they could use the income tax system to not only raise revenues to run the Federal government, but to also promote various moral, ethical or political themes.
So what are the normal deductions available to all Americans? When we prepare our annual tax returns the IRS tells us that this year about 15% of us will be able to “itemize” deductions.
Today, Congress provides taxpayers with a “standard deduction” that they are allowed to subtract from income to determine their net taxable income. For 2018 the standard deduction for a married couple is $24,000, and $12,000 for single taxpayers. Additionally for most taxpayers Congress allows them to deduct individual “itemized” deductions on Schedule A if they add up to more than the standard deduction. Of course this usually results in less income tax for people who have more itemized deductions than the standard deduction. So either way everyone is allowed to deduct either the standard deduction or itemized deductions, whichever is higher.
So what are these itemized deductions? There are 5 main categories, Medical, Taxes, Interest, Charity and Other they are added up on IRS Form 1040, Schedule A. Surprisingly only 2 or 3 categories provide any real deductions for most people due to various limits, floors and thresholds. For 2018 many of these have changed. If you need help deciding on whether or not to itemize, please give us a call. Our firm spends over 120 hours a year in continuing education just to keep up to date on the latest tax laws.
Be advised, you and your spouse may use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. You both must use the same method of claiming deductions. If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction.
If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X to amend the return.
This discussion of one of the most basic tax planning concepts of itemizing deductions rather than using the standard deduction includes many summaries that overlook the intricate rules involved. At our office we make sure to closely examine the rules every year for you to try and get the best treatment possible when it comes to this issue, and we are always happy to answer any questions
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