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What You Need To Know About Standard Deduction Increasing In 2020

What You Need To Know About Standard Deduction Increasing In 2020

For the vast majority of taxpayers, there is some good news coming in 2020. There will be an increase in the standard deduction. The increase is minimal though and you will not likely notice the difference in your paychecks throughout the year, so keep that in mind before you run out and start spending.

The number of taxpayers itemizing their tax deductions has plummeted under the 2018 tax overhaul. More than 90 percent of taxpayers are expected to simply take the standard deduction for tax years 2019 and 2020. For many taxpayers, that option is easier than itemizing and that it will result in a smaller overall tax liability. On that note, you may still want to check if itemizing your tax deductions will benefit you. 

The Standard Deduction for 2020

The basis of the size of the standard deduction you are allowed to take is the filing status of your tax return for the year. If you are single (or married filing separately), there will be an increase of $200 or $12,400 standard deduction for 2020 

Your standard deduction will be increasing $300 to $18, 650 if you file your taxes as head of household.

The standard deduction is increasing by $400 up to $24, 800 for the tax year 2020 for married couples filing jointly.

We may see even fewer people itemize deductions in 2020 with an increase in the standard deduction.

Itemizing versus Taking Start Deduction

The choice between the standard deduction and itemizing for some taxpayers will boil to ease of getting to finish their taxes. Other taxpayers, on the other hand, should make their choice base on the option that will result in the lowest overall tax bill for the year.

The math is pretty simple. You should itemize if you are a married couple with more than $24,800 in tax deductions. You should take the standard deduction if you have a few tax deductions than that amount.

It requires more work and time if you choose to itemize your tax deduction. This means for taxpayers at the standard deduction level, it’s best to take the easier route and choose the standard deduction. 

Itemizable Tax Deductions

Many valuable tax breaks may have been eliminated and severely capped others by the Tax Cuts and Jobs Act (TCJA) but there are many opportunities where you could also lower your tax bills through proactive tax planning.

Here are some major tax deductions taxpayers may itemize:

  • Mortgage Deduction - Under the Trump presidency, the mortgage deduction has shrunk to just the first $750,000 of mortgage debt. However, you will still be able to deduct up to $1 million in mortgage debt if you obtained your mortgage before the 15th of December, 2017. Have a talk with your financial planning or with a CPA since additional restrictions on deductions have been implemented. You need to see how much of a mortgage deduction you may qualify for.
  • State and Local Taxes - The deduction has been capped at a measly $10,000 per year even though you can still deduct your state and local taxes. That is where New York and California homeowners are getting royally screwed.
  • Interest On Your Home Equity Line of Credit - The rules for the deductibility of the interest on a home equity line of credit (HELOC) have also changed. If the debt wasn’t directly used to improve your home, you can no longer deduct HELOC.
  • Charity Donations - You can receive a tax deduction if you donate to a nonprofit. The donations you make can be in the form of cash or even goods. However, a receipt is still required for you to get a tax break for your generosity.

The Bottomline

It’s best for you to take the time to choose the right options. It is great for many taxpayers to get a larger standard deduction. On that note, thinking that you will automatically take the standard deductions is wrong. You should make an effort to itemize your tax deductions if you have the write-offs.

Since you worked hard all year to earn an income, do yourself a favor. Take a little extra time to file your taxes in order to keep more of your hard-earned money.

Unifirst Financial & Tax Consultant
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