Standard Deduction vs Itemizing - Experience this year

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ThreeBears
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Standard Deduction vs Itemizing - Experience this year

Post by ThreeBears » Sat Apr 06, 2019 10:33 am

Our mortgage is about $200,000, and we maxed out our state tax deduction ($10,000).

After entering expenses for a few hours, I noticed our itemized deduction was a few hundred dollars more than our standard deduction would have been . . . it almost wasn't worth the effort.

Did anyone else have that experience this year?

EDITED TO ADD DETAIL:

I'm not sure bunching helps given the $10,000 SALT limit, what i theoretically would "bunch" are property tax payments on my primary residents. But, the SALT limitations limit that approach.

1. mortgage interest: $9,343.81 (this will decrease each year, as principal payments increase)
2. SALT - $10,000 (this won't change for likely 9 more years)
3. donations deduction (non-money) $5,000 (going above $5,000 requires special documentation, as I understand it)
4. money donations maybe $100 (I'm not super general with my money . . . maybe that will change eventually.)

----------
Standard deduction or itemized deductions (from Schedule A): 24,433.

So, all this work, and I only end up $433 above the standard deduction.

However, I think I also have to itemize to take state 529 deduction.

Still, itemizing may save me around $200.00 overall.

Almost does not seem worth the effort.
Last edited by ThreeBears on Sat Apr 06, 2019 11:20 am, edited 1 time in total.

Gill
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Gill » Sat Apr 06, 2019 10:38 am

You appear to be a good candidate for bunching, i.e., take the standard deduction in alternate years and bunch your deductions in the alternate years. In order to do that, however, you need to project your deductions rather than having them come as a surprise. I knew a year ago I'd be taking the standard deduction for 2018 after itemizing most of my life.
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Kenkat
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Kenkat » Sat Apr 06, 2019 10:52 am

The $10,000 SALT limit was a deal breaker for me; without that, I wasn’t going to have over the standard deduction amount, so I didn’t even bother and just took the standard deduction. It was certainly easier (much less recordkeeping) and didn't hurt my overall tax liability too badly.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by mega317 » Sat Apr 06, 2019 11:06 am

Gill wrote:
Sat Apr 06, 2019 10:38 am
You appear to be a good candidate for bunching
This, or you have a stronger case for paying down the mortgage more aggressively if you were considering that.

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David Jay
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Re: Standard Deduction vs Itemizing - Experience this year

Post by David Jay » Sat Apr 06, 2019 11:20 am

We have been aggressively paying down our mortgage in preparation for retirement. As a result our mortgage interest has been falling. For 2018 TurboTax selected the standard deduction. Just to check, I added a fictional $1000 charitable deduction to test the crossover point and our tax-owed valued did not change, so for us the choice wasn’t even very close.

Now that our mortgage is paid off, I do not expect to be using itemized deductions in the future.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by dodecahedron » Sat Apr 06, 2019 11:44 am

No mortgage here, but since my filing status is single, and I had $10K in real estate taxes, significant charitable giving, and medical expenses in 2018, itemizing is definitely worth it on both federal & state.

Medical is hopefully way down in 2019 (thanks to being on Medicare with zero premium MA plan), but real estate tax & charitable will easily suffice to exceed my federal standard deduction so I expect to be itemizing again next April for federal & state. I do have a DAF and might deduction bunch charitable. However, there are all kinds of nonlinearities in the system (e.g., I will start survivor SS benefits once they maximize in late fall, so this will be my last year without much SS.)

Once I hit 70 1/2 (in five years), I plan to use QCD for charitable donations and probably will stop itemizing for federal.

My state (NY) now allows itemizing even if I take the standard deduction on federal, so I expect I will be itemizing on my state returns every year going forward. (My property taxes alone exceed the $8K standard deduction allowed for single filers in my state.) Even so, my goal is to streamline and simplify my taxes by the time I am over 70 1/2.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by grabiner » Sat Apr 06, 2019 2:29 pm

ThreeBears wrote:
Sat Apr 06, 2019 10:33 am
3. donations deduction (non-money) $5,000 (going above $5,000 requires special documentation, as I understand it)
What are you donating? The IRS Form 8283 instructions clarify this rule.

If you donate publicly traded securities, the $5000 rule does not apply; the purpose of the rule is to prove to the IRS that your donation is worth the claimed value, and stock values are easy to confirm. This is also one of the most common non-cash donations, as you can avoid capital-gains tax by donating appreciated stock.

If you are donating something else, the $5000 rule requiring extra documentation does apply for each item or group of similar items. If you donate a car worth $6000 and books worth $1000, you need extra documentation for the car (which the charity can probably help you with), but not the books.

The only limit which is aggregated over all gifts is the $500 minimum for filing Form 8283. If your total non-cash gifts exceed $500, you must report all the gifts on Form 8283, even those under $500.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by NYnative » Sat Apr 06, 2019 4:10 pm

Had to itemize for 2018 for the first time since we bought a home. The SALT limit pretty much killed the opportunity. Plus, home interest payments are very low. Hard to break the medical 7.5% limit in 2018, probably won't in 2019. We are bunching charitable deductions and skipped almost all in 2018 and will donate two years worth in 2019. That plus interest plus $10K SALT might be enough to allow us to itemize for 2019. Will have to wait and see. Even with the lower tax rates and approximately the same income for 2017 and 2018 our overall tax rate on AGI went up 4%.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by dallasjava » Sat Apr 06, 2019 5:07 pm

2018 was the first time since being a homeowner that I have not itemized. The increase in the standard deduction and the SALT cap made it happen this way. We have been aggressively paying down the mortgage starting last May.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by DorothyB » Sat Apr 06, 2019 8:07 pm

In the past, I always itemized. No mortgage, but property tax and sales tax deductions (no state income tax here) as well as charitable contributions.

Since, in the past, my contributions have all been cash (well, check), the $5K limit doesn't affect me.

With the new tax laws, I am itemizing every other year. I am utilizing a Donor Advised Fund so that in years that I itemize, I can deduct almost two years worth of charitable contributions. I am a bit under the $10K SALT limit in a normal year, but since the property tax bills are issued in the fall, paid by most in December so they can be deducted, but not past due until Jan 31, I am able to pay two years worth of property taxes in one year which puts me over the SALT limit but allows me to take the maximum $10K deducting during itemizing years.

2018 was a standard deduction year and I will be itemizing for 2019.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by obgraham » Sat Apr 06, 2019 9:21 pm

Always itemized till 2018, when standard deduction was a better choice. The SALT does not apply to us, and bunching taxes isn't possible with the schedules of our places. That leaves charitables as the only way to work the system.

I guess we'll be standard deduction hereafter.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Zonian59 » Sat Apr 06, 2019 9:49 pm

For 2018, my itemizing calculated to about $9500. If the standard deduction hadn't increased to $12000 my income tax refund would have been lower. In my case the new standard deduction worked to my favor so I took it. Interestingly enough, I was able to take the itemizing for State income tax calculations.

I expected my 2018 itemizing to be lower because I had just paid off my mortgage and my medical expenses were lower.

It will interesting to see how 2019 taxes shapes up as I may be in a higher tax bracket, due to decision to take megacorp retirement pension in 2019 and incurring some higher than expected interest/dividends. Whether the higher ACA premiums I'm currently paying plus some unanticipated medical expenses incurred so far will offset remains to be seen.

I will say the new 1040 format has been interesting. Has it simplified the returns? Not really, just shifted things around.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Peter Foley » Sat Apr 06, 2019 10:55 pm

This year was the first time in 40 years that I have not itemized. While we have not had a mortgage for a long time, state income taxes, property taxes and charitable contributions always exceeded the standard deduction. With the SALT limit, we did not come close.

Under current tax law, bunching charitable deductions would be the only way for itemizing to be to our advantage.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by TierArtz » Sun Apr 07, 2019 12:45 am

The largest component of our deduction is charitable giving. The SALT limitation would have decreased the total by about $3K to roughly $37k, an amount still above the new married, filing jointly, standard deduction. But, in 2018 we started a DAF and funded it with about 4 years worth of giving using highly appreciated VTSAX shares. In 2019 to roughly 2021, I estimate deductible items will be about $15K, so we'll take the standard deduction. Whenever the DAF falls to the point of incurring maintenance fees ($15K), we'll fill it up a few years worth of giving again.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by learningstill » Sun Apr 07, 2019 12:57 am

David Jay wrote:
Sat Apr 06, 2019 11:20 am
We have been aggressively paying down our mortgage in preparation for retirement. As a result our mortgage interest has been falling. For 2018 TurboTax selected the standard deduction. Just to check, I added a fictional $1000 charitable deduction to test the crossover point and our tax-owed valued did not change, so for us the choice wasn’t even very close.

Now that our mortgage is paid off, I do not expect to be using itemized deductions in the future.
You shouldn't need to run a TT test like that to understand tradeoff between itemized and standard deduction. If you enter all of your deductions, you should be able to see your total for itemized and compare that to the standard deduction (likely $24K since you said "we"). The difference is how much you would need to fill with itemized things like mortgage interest and charitable giving before you start seeing your tax go down.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by camillus » Sun Apr 07, 2019 1:56 am

DorothyB wrote:
Sat Apr 06, 2019 8:07 pm
With the new tax laws, I am itemizing every other year. I am utilizing a Donor Advised Fund so that in years that I itemize, I can deduct almost two years worth of charitable contributions. I am a bit under the $10K SALT limit in a normal year, but since the property tax bills are issued in the fall, paid by most in December so they can be deducted, but not past due until Jan 31, I am able to pay two years worth of property taxes in one year which puts me over the SALT limit but allows me to take the maximum $10K deducting during itemizing years.
This is exactly what I am doing. Our itemized deductions were almost exactly at 24k, our MFJ standard deduction. I am planning on doubling charitable donations and starting a DAF in 2020. Also, our property tax bill is issued in July but can be paid late in January with a 4% penalty.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by fru-gal » Sun Apr 07, 2019 5:32 am

grabiner wrote:
Sat Apr 06, 2019 2:29 pm
ThreeBears wrote:
Sat Apr 06, 2019 10:33 am
3. donations deduction (non-money) $5,000 (going above $5,000 requires special documentation, as I understand it)
What are you donating? The IRS Form 8283 instructions clarify this rule.

If you donate publicly traded securities, the $5000 rule does not apply; the purpose of the rule is to prove to the IRS that your donation is worth the claimed value, and stock values are easy to confirm. This is also one of the most common non-cash donations, as you can avoid capital-gains tax by donating appreciated stock.

If you are donating something else, the $5000 rule requiring extra documentation does apply for each item or group of similar items. If you donate a car worth $6000 and books worth $1000, you need extra documentation for the car (which the charity can probably help you with), but not the books.

The only limit which is aggregated over all gifts is the $500 minimum for filing Form 8283. If your total non-cash gifts exceed $500, you must report all the gifts on Form 8283, even those under $500.
I just ran into this with a car I donated. The paperwork says for $500 to $5000 you need a form 1098c. For over $5000 you need a form 8283 signed by an officer of the charity. I am not sure if the boundaries are < or <= etc.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Rus In Urbe » Sun Apr 07, 2019 5:39 am

We made a $32K donation to our DAF last year-----in appreciated stock.
We plan to do more this year.
That helps.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by fru-gal » Sun Apr 07, 2019 6:06 am

dodecahedron wrote:
Sat Apr 06, 2019 11:44 am
No mortgage here, but since my filing status is single, and I had $10K in real estate taxes, significant charitable giving, and medical expenses in 2018, itemizing is definitely worth it on both federal & state.
I similarly do better itemizing, even this year when the new restrictions cost me several thousand dollars more in taxes. Besides the above, dental expenses were a significant item.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by 22twain » Sun Apr 07, 2019 7:04 am

Our property tax has never been more than about $1100, but even after we paid off our mortgage, our state income tax and charitable contributions were a couple thousand over the old standard deduction until a few years ago. When our income dropped as we phased into retirement, the state tax fell enough that for 2016 and 2017 we took the standard deduction. It was fairly close, so we still added up our potential deductions. For 2018, with the new standard deduction, we didn't bother even trying to itemize.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by nolesrule » Sun Apr 07, 2019 7:25 am

We put money into a DAF at the end of 2017 to take advantage of a last shot at itemizing.

But I ran a model of potential itemizing year over year under the current tax law. It required estimating future year standard deductions, the decrease in mortgage interest, and the expected accumulation of charitable donations. What I found was that I can bunch every 2 years, but doing it less frequently will result in a better "annualized" deduction. There was no point where the tax benefit peaked, even after the mortgage ended.

My initial DAF contribution will probably last about 4 years, so bunching the donations every 3 to 4 years (and pulling in the January mortgage payment in a year we bunch) will probably get us the best overall outcome.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Harry Livermore » Sun Apr 07, 2019 7:46 am

Like some others here, we used the standard deduction for the first time in almost 30 years. I knew it was going to be a rough go this year, and it was about as I expected. Our 2017 Schedule A itemized deductions were a little over $40K. 5 members in our household yielded $20,250 in personal exemptions. So we had almost $61K of deductions in 2017 that went away for 2018, to be replaced by the $24K "standard deduction" and $2K child tax credit (only 2 in the household are under 18)
2017 AGI +/- $281K= $41K "total tax" (line 63) 14.59% effective tax rate
2018 AGI +/- $219K= $43K "total tax" (line 15) 19.63% effective tax rate
Looks like "mission accomplished" for the Fed.
There are many moving parts (we had a very large cap gain in 2017, and I had a very large 179 business equipment purchase in 2017, my Keough contributions were different year-over-year) so it's hard to do a true comparison. But AGI seems like the correct starting point, no? It would seem the elimination of personal exemptions and SALT was a major ding for us, as expected. On the bright side, I was able to take the 199A QBD on the business deduction, and that helped (not a lot as evidenced by the effective tax rate) And for the first time in 20 years, we did not owe the AMT (although the effective tax rate was lower in 2017 even with the AMT)
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Re: Standard Deduction vs Itemizing - Experience this year

Post by LadyGeek » Sun Apr 07, 2019 9:09 am

This thread has run its course and is locked (not personal nor actionable). General comment threads are off topic in the forums with "Personal" in the title. See: A reminder that non-investing general comment threads are OT
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Re: Standard Deduction vs Itemizing - Experience this year

Post by LadyGeek » Sun Apr 07, 2019 7:21 pm

After receiving a PM, the OP intends to see how other members are responding to significant changes in tax laws. In detail, the information was helpful about (1) charitable donations and (2) Donor advised funds.

This thread is now unlocked to continue the discussion.

Please state how the tax law changes have modified your tax planning strategy.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Peter Foley » Sun Apr 07, 2019 7:45 pm

Some of us are fortunate enough to do tax planning for ourselves, our children, and our grandchildren. The change in the tax law that allows for broader use of 529 plans allow us to gift to a 529 plan for grandchildren w/o exceeding gift reporting thresholds for our children. Under certain circumstances those funds could be put to almost immediate use.

The alternative method of setting up a custodial account account and transferring appreciated stocks or mutual funds does not work as well under the new tax law. For custodial accounts we set up a few years ago for grandchildren we have advised our daughters to do a small amount of tax gain harvesting to avoid have to file a tax return for their children. If not, in a few years the annual long term capital gains and dividends might exceed the filing threshold for dependent minors.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Chip » Mon Apr 08, 2019 7:38 am

Until TCJA we were bunching deductions every other year. The major deductions were state income tax and property taxes. With the 10k limit on SALT and the higher standard deduction it looks like bunching is over for us. The exception would be if we donate a big chunk to our DAF in some future year. That seems unlikely since we put in a big chunk at the end of 2017 and QCDs are on the horizon.

Using the standard deduction certainly makes tax planning and return preparation simpler.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Stinky » Mon Apr 08, 2019 8:13 am

Peter Foley wrote:
Sat Apr 06, 2019 10:55 pm
This year was the first time in 40 years that I have not itemized. While we have not had a mortgage for a long time, state income taxes, property taxes and charitable contributions always exceeded the standard deduction. With the SALT limit, we did not come close.

Under current tax law, bunching charitable deductions would be the only way for itemizing to be to our advantage.
Exactly my situation except for DAF contribution in 2018.

Itemized every year since 1978. Won’t do it again until it’s time to bunch charitable contributions by re-donating to DAF.
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Traveller » Mon Apr 08, 2019 8:32 am

Stinky wrote:
Mon Apr 08, 2019 8:13 am
Peter Foley wrote:
Sat Apr 06, 2019 10:55 pm
This year was the first time in 40 years that I have not itemized. While we have not had a mortgage for a long time, state income taxes, property taxes and charitable contributions always exceeded the standard deduction. With the SALT limit, we did not come close.

Under current tax law, bunching charitable deductions would be the only way for itemizing to be to our advantage.
Exactly my situation except for DAF contribution in 2018.

Itemized every year since 1978. Won’t do it again until it’s time to bunch charitable contributions by re-donating to DAF.
Same story for us. I opened and funded a DAF in November 2018, so going forward we will itemize on even year taxes and take standard deduction on odd years.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by mariezzz » Mon Apr 08, 2019 9:15 am

mega317 wrote:
Sat Apr 06, 2019 11:06 am
Gill wrote:
Sat Apr 06, 2019 10:38 am
You appear to be a good candidate for bunching
This, or you have a stronger case for paying down the mortgage more aggressively if you were considering that.
This is more beneficial when someone has already maxed out all retirement account contributions. If that hasn't happened, the reduction in income that comes with greater pre-tax contributions may be more beneficial. It may also help if one has kids about to go to college or already in college by reducing income.

I'm worse off with the 2018 tax law changes; the loss of the personal exemption means I am paying more in taxes. There's no reason for me to itemize, but the standard deduction is less than what I got on 2017 taxes via itemizing and personal exemption; the lower tax rate doesn't offset this enough for the changes to be of benefit to me.
Last edited by mariezzz on Mon Apr 08, 2019 9:21 am, edited 1 time in total.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by scrabbler1 » Mon Apr 08, 2019 9:19 am

I itemized every year from 1989-2008, the 20 years I was both working and owned my co-op apartment. Starting in 2009, my first full year of early retirement, I usually itemized but sometimes took the standard deduction because I was able to bunch some of my deductions and save a few hundred dollars in taxes.

That all ended with the new tax law. My itemized deduction had been hovering around the old SD (~$6k for singles), so barring anything really big there is no way I can push that up to ~$12k, even with bunching, to stop using the SD. To get my last licks in with charitable deductions, I made a long-delayed donation at the end of 2017 so I could get some value from it.

The new tax law has cost me a little because the loss of the personal exemption outweighs the increase in the SD and reduction in some tax rates. Most of my income is investment or in the 10% bracket, both unchanged from before.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by dcabler » Mon Apr 08, 2019 9:22 am

Been itemizing since about 1990 which is the year after we got married and bought our house. We did manage to itemize this year, but it was only barely. Unless something drastic changes, next year we most likely won't be itemizing.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by mariezzz » Mon Apr 08, 2019 9:27 am

NYnative wrote:
Sat Apr 06, 2019 4:10 pm
Had to itemize for 2018 for the first time since we bought a home. The SALT limit pretty much killed the opportunity. Plus, home interest payments are very low. Hard to break the medical 7.5% limit in 2018, probably won't in 2019. We are bunching charitable deductions and skipped almost all in 2018 and will donate two years worth in 2019. That plus interest plus $10K SALT might be enough to allow us to itemize for 2019. Will have to wait and see. Even with the lower tax rates and approximately the same income for 2017 and 2018 our overall tax rate on AGI went up 4%.
My situation was similar to bolded line above.

As a note:
Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.
https://turbotax.intuit.com/tax-tips/he ... /L1htkVqq9

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Re: Standard Deduction vs Itemizing - Experience this year

Post by runner26 » Mon Apr 08, 2019 9:45 am

SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by markcoop » Mon Apr 08, 2019 9:54 am

In anticipation for this year, I did alot at the end of 2017 - prepaid mortgage payment of Jan, prepaid property taxes, opened a donor-advised fund. So for 2018, I wasn't close to itemizing. I plan to play around alot with Turbotax to see if bundling or itemizing state taxes (live in NY) is a possibility for next year's return.
Mark

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Re: Standard Deduction vs Itemizing - Experience this year

Post by nolesrule » Mon Apr 08, 2019 9:54 am

runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?

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Re: Standard Deduction vs Itemizing - Experience this year

Post by Flyer24 » Mon Apr 08, 2019 10:23 am

I used the standard deduction because I lost the ability to deduct work expenses. However, my tax liability was $2500 less for the same income so it all worked out.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by runner26 » Mon Apr 08, 2019 10:24 am

nolesrule wrote:
Mon Apr 08, 2019 9:54 am
runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?
Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by TBillT » Mon Apr 08, 2019 10:34 am

You need to consider state tax policy.

Some states like Va. and Md. are taking the opportunity to increase state taxes based on TCJA. So if you do not itemize on Federal, you lose a substantial state tax deduction. In my case I have to consider Itemizng on Federal even if I am well below standard deduction. So say I take an $800 loss on Federal, but I pay maybe $1000 less on state. So I have to take the $800 loss on Federal by skipping the new Standard Deduction, which is not fun.

In that case I am thinking donations and things to boost the Itemizations, etc. Maybe more HELOC interest etc. 2018 I took less Roth conversion that I had hoped to, which allowed to me itemize by taking medical deducts.

And what's even harder is being over Age 65, so we have to conjure up $26300 of itemized to match the standard.

nolesrule
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Re: Standard Deduction vs Itemizing - Experience this year

Post by nolesrule » Mon Apr 08, 2019 11:23 am

runner26 wrote:
Mon Apr 08, 2019 10:24 am
nolesrule wrote:
Mon Apr 08, 2019 9:54 am
runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?
Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.
Got it. That makes sense, but could not be determined from your post.

milo minderbinder
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Re: Standard Deduction vs Itemizing - Experience this year

Post by milo minderbinder » Mon Apr 08, 2019 11:36 am

This is the first year since I started doing taxes in 1982 that I haven't itemized. Unless I make an unusually large charitable donation I probably won't itemize going forward. I guess it makes it a little easier, but I'd far prefer not being subject to double taxation.

mariezzz
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Re: Standard Deduction vs Itemizing - Experience this year

Post by mariezzz » Mon Apr 08, 2019 6:01 pm

nolesrule wrote:
Mon Apr 08, 2019 11:23 am
runner26 wrote:
Mon Apr 08, 2019 10:24 am
nolesrule wrote:
Mon Apr 08, 2019 9:54 am
runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?
Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.
Got it. That makes sense, but could not be determined from your post.
Tax on 7000, even at the 15% income tax bracket, is substantial. I understood that point.

nolesrule
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Re: Standard Deduction vs Itemizing - Experience this year

Post by nolesrule » Mon Apr 08, 2019 6:37 pm

mariezzz wrote:
Mon Apr 08, 2019 6:01 pm
nolesrule wrote:
Mon Apr 08, 2019 11:23 am
runner26 wrote:
Mon Apr 08, 2019 10:24 am
nolesrule wrote:
Mon Apr 08, 2019 9:54 am
runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?
Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.
Got it. That makes sense, but could not be determined from your post.
Tax on 7000, even at the 15% income tax bracket, is substantial. I understood that point.
There were no specific tax brackets mentioned. Unless you're in one of those weird zones, the increase is only incremental and not always worth making an effort to avoid the income. For example, the difference in tax on $7000 going from 22% to 24% is only $140. But the hump with the interaction of ordinary income and qualified dividends is an expensive zone that is not quite as simple as "keep from getting bumped into a higher tax bracket".

mariezzz
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Re: Standard Deduction vs Itemizing - Experience this year

Post by mariezzz » Mon Apr 08, 2019 6:42 pm

Earliest comment in this chain was:
runner26 wrote:
Mon Apr 08, 2019 9:45 am
SALT limit kept me from itemizing Federal this year. I had to take 7000 less in income than last year to keep from being bumped into a higher bracket. Worse, I still had to fill out Schedule A to itemize my CA state return. I am now dumping every maturing CD into the mortgage which I cannot write off on my federal return any longer.
nolesrule wrote:
Mon Apr 08, 2019 6:37 pm
mariezzz wrote:
Mon Apr 08, 2019 6:01 pm
nolesrule wrote:
Mon Apr 08, 2019 11:23 am
runner26 wrote:
Mon Apr 08, 2019 10:24 am
nolesrule wrote:
Mon Apr 08, 2019 9:54 am
You realize that only that $7000 would have been subject to the next tax bracket, not all of your income, right?
Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.
Got it. That makes sense, but could not be determined from your post.
Tax on 7000, even at the 15% income tax bracket, is substantial. I understood that point.
There were no specific tax brackets mentioned. Unless you're in one of those weird zones, the increase is only incremental and not always worth making an effort to avoid the income. For example, the difference in tax on $7000 going from 22% to 24% is only $140. But the hump with the interaction of ordinary income and qualified dividends is an expensive zone that is not quite as simple as "keep from getting bumped into a higher tax bracket".
I'm not following your point. If you can't itemize $X amount off the amount you pay taxes on [due to changes in the tax law], you're paying taxes on the full amount - whatever bracket you're in (or you might end up straddling 2 brackets - with part of the $X being taxed in one bracket and part in another). Even if $ amount was taxed only at 15%, that's a pretty substantial tax to pay.

I ended up having a taxable income of >$3,000 dollars more this year due to the changes, due to the loss of the personal exemption - there was no point to itemizing at all for me; the higher standard deductible did not offset the loss of the personal exemption. In 2017, I wouldn't have paid any taxes on that amount.

nolesrule
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Re: Standard Deduction vs Itemizing - Experience this year

Post by nolesrule » Mon Apr 08, 2019 6:54 pm

mariezzz wrote:
Mon Apr 08, 2019 6:42 pm
nolesrule wrote:
Mon Apr 08, 2019 6:37 pm
mariezzz wrote:
Mon Apr 08, 2019 6:01 pm
nolesrule wrote:
Mon Apr 08, 2019 11:23 am
runner26 wrote:
Mon Apr 08, 2019 10:24 am


Yes. I also realize that it would have pushed 0% dividend to 15% for a net 27% federal rate on much of that income.
Got it. That makes sense, but could not be determined from your post.
Tax on 7000, even at the 15% income tax bracket, is substantial. I understood that point.
There were no specific tax brackets mentioned. Unless you're in one of those weird zones, the increase is only incremental and not always worth making an effort to avoid the income. For example, the difference in tax on $7000 going from 22% to 24% is only $140. But the hump with the interaction of ordinary income and qualified dividends is an expensive zone that is not quite as simple as "keep from getting bumped into a higher tax bracket".
I'm not following your point. If you can't itemize $7000 off the amount you pay taxes on, you're paying taxes on the full amount - whatever bracket you're in (or you might end up straddling 2 brackets). Even if the the $7000 was taxed only at 15%, that's a pretty substantial tax to pay.
My initial comment was based on the person taking 7000 less in income to avoid the next tax bracket.
I had to take 7000 less in income than last year to keep from being bumped into a higher bracket.
Some people erroneously think that increasing your tax bracket increases the tax rate on all your income, and it was not clear what the poster meant. Your talk of itemizing isn't really relevant in that context. As for what constitutes substantial, that depends on the marginal rate of the additional income. If you're already paying 15%, I wouldn't think paying the same rate on additional money is substantial, and I owuldn't think paying a small incremental increase (say, going from 22% to 24% is substantial).

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runner26
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Re: Standard Deduction vs Itemizing - Experience this year

Post by runner26 » Mon Apr 08, 2019 10:57 pm

Sorry I was not clear. I was staying in the 12 % bracket to keep my substantial dividends at zero percent so as not to get pushed into the hump for dividends, between the 12 an 22 brackets, which is effectively 27 percent. I can control my income to some extent. I will attempt it again this year. Next year when I start SS and mandatory TIRA distributions at 70, I will no longer be able to avoid all dividends moving to 15 percent, then I wont worry any more about 22 percent as I will be there forever, unless rates change.

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Taz
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Taz » Tue Apr 09, 2019 6:52 am

No SALT impact for us living in FL. In 2018 we donated appreciated shares to fund a Fidelity DAF thinking that we would alternate taking the standard deduction. We are thinking about adding another chunk again this year with an eye toward keeping us below the 24% marginal rate. My wife may retire in 2020 so having a charitable reserve to use is important to us and we'll most likely be taking the standard deduction going forward. There are charitable deduction limitations based on percentage of income which would make effective bundling a little harder to do.

Taz
The destination matters.

rich126
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Re: Standard Deduction vs Itemizing - Experience this year

Post by rich126 » Tue Apr 09, 2019 7:03 am

TBillT wrote:
Mon Apr 08, 2019 10:34 am
You need to consider state tax policy.

Some states like Va. and Md. are taking the opportunity to increase state taxes based on TCJA. So if you do not itemize on Federal, you lose a substantial state tax deduction. In my case I have to consider Itemizng on Federal even if I am well below standard deduction. So say I take an $800 loss on Federal, but I pay maybe $1000 less on state. So I have to take the $800 loss on Federal by skipping the new Standard Deduction, which is not fun.

In that case I am thinking donations and things to boost the Itemizations, etc. Maybe more HELOC interest etc. 2018 I took less Roth conversion that I had hoped to, which allowed to me itemize by taking medical deducts.

And what's even harder is being over Age 65, so we have to conjure up $26300 of itemized to match the standard.
I was going to say the same thing. I was listening to a tax expert on a radio show mention the same thing. In MD, you cannot itemize deductions unless you do so on the Federal return.

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Re: Standard Deduction vs Itemizing - Experience this year

Post by StopIroningShirts » Tue Apr 09, 2019 7:13 am

2018 moved me to the standard deduction. Previously I was deducting $14,000 in property taxes, $11,000 in mortgage interest, and $5,000 in charitable deductions. Married with no kids.

Info

2017: AGI $171,942, Effective Rate 13.27%
2018: AGI $183,511, Effective Rate 14.10%

prd1982
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Re: Standard Deduction vs Itemizing - Experience this year

Post by prd1982 » Tue Apr 09, 2019 7:21 am

TBillT wrote:
Mon Apr 08, 2019 10:34 am
Some states like Va. and Md. are taking the opportunity to increase state taxes based on TCJA. So if you do not itemize on Federal, you lose a substantial state tax deduction.
I think you are unfairly accusing the states. It is typical for states to require federal itemized in order to use state itemized. Just think of what the state would have to implement to support itemization:

* They would need a new form to enter the deductions.
* They would need new processes to duplicate the processing the fed form provides.
* They would need to develop audit rules to ensure minimal cheating.

Currently the state can count on the feds to do most of the heavy lifting for itemization. I don't see that changing.

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Artful Dodger
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Re: Standard Deduction vs Itemizing - Experience this year

Post by Artful Dodger » Tue Apr 09, 2019 7:27 am

We’re similar that with one of us 65, the standard deduction was $26,300. I knew last year, with the changes, I would take the standard deduction. Property tax and state income tax came in around $14k but would have been capped at $10k. We’re at the tail end of our mortgage, and interest was around $3600. Our charitable deductions are in the $5k - $6k range. So, even without the SALT cap, we would have been below $25,300.

We already had a DAF, so in 2017 I added $22k to it, to get an the extra deduction while I could. I’m thinking that will fund about what we’ve been giving towards charity until spouse hits 70, then we’ll do via QCDs.

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