In light of the changes made to tax deductions with the Tax Cuts and Jobs Act of 2017, donors may be asking themselves, “Will I continue to itemize deductions, or will I claim the standard deduction with my 2018 tax returns?” With the significant change in the standard deduction, a fair number of taxpayers will likely shift to claim the standard deduction. And in doing so, they will benefit by having more discretionary income available to save, spend, and give. However, as taxpayers look more closely at their expenses and the new tax code implications on itemized deductions, many will find that continuing to be an itemizer is a relevant reality.
To understand more concretely the decision of taking the standard deduction or itemizing, let’s look at an example. Jack and Jill are married and live in the state of Missouri. Jack is a computer programmer earning $93,000 per year. Jill is a financial analyst and makes $70,000. Their total household income is $163,000. They will pay state income tax of $10,098. Their mortgage is $165,000 and they will pay mortgage interest of $5,470. Their property taxes are $1,944. Because their property taxes and state income taxes exceed the new aggregate limit of $10,000, they are “capped” at that amount. Jack and Jill have two charitable giving priorities: $400 per month to support the church they attend, and $5,000 per year to support Bluefield College where they met and to whom they are grateful for the education they received.
In this scenario, Jack and Jill, filing jointly, have total itemized deductions under the new tax code that applies to their 2018 tax return as follows:
| Mortgage Interest | $5,470 |
| State & Local Taxes | $10,000 |
| Charitable Giving | $9,800 |
| TOTAL | $25,270 |
Jack and Jill would choose to itemize their deductions, as the amount of their itemized deductions exceeds the $24,000 standard deduction limit. As households look more closely at their tax-deductible expenses and their overall charitable giving, many may find that even as the standard deduction has been made a more viable option due to the doubling of its levels, continuing as an itemizer may very well continue to be the best option in maximizing tax savings.