Should I Take the Standard Tax Deduction or Itemize?

It’s a question many taxpayers ask themselves each year: Should I itemize my deductions, or should I take the standard? Of course, every situation is different, but we can provide guidance on the factors that contribute to this decision.

As specialists in “moving to tax-free” we help clients prepare for a tax-free retirement. Limiting your tax liability is a key focus for us at Hosler Wealth Management. Tax planning and annual spending all come to the forefront at the end of the year.

Making the deduction decision depends on your individual situation in any given year. Some years may warrant itemizing; in others you may be best served using the standard deduction. It varies based on the income and amounts and sources of your income. Filing a Schedule, A and itemizing deductions may make a big difference depending on your circumstances.

• • Medical Expenses: The catch is that medical and dental expenses, including insurance premiums, must exceed 7.5% of adjusted gross income (AGI) before any deduction. If a married couple has a 2023 AGI of $100,000, medical expenses must exceed $7,500 before even one dollar can be deducted as an itemized deduction for the year.
  • Arizona State Medical Expenses: For Arizona residents, medical expenses are 100% tax deductible for state income tax purposes regardless of whether you itemize or not. Keep good records to capture all of your medical and dental expenses for that year.
  • State and Local Taxes (SALT): The 2017 act severely limited the SALT deduction. It’s capped at $10,000 per year for single or joint filers or heads of households. SALT includes state income taxes, property taxes on all properties, and state sales tax including large purchases like buying a car or RV.
  • Mortgage Interest: Very attractive to many taxpayers, the mortgage interest on your primary and secondary homes can be itemized and potentially qualify as a deduction. Primarily, the debt must be “acquisition indebtedness.” This means funds must be used to buy or improve a home. Interest on money used for other purposes, such as paying off a credit card or purchasing a car, does not qualify. The loan must also be secured against the property.
  • Charitable Donation Deductions: Tithing paid to your church, annual charitable commitments to a college alma mater or nonprofit organization, and donations of furniture, clothing or property, can qualify for an itemized deduction on Schedule A.

Knowing When to Take a Standard Deduction

If a client doesn’t have enough itemized deductions, we don’t want them to stress about gathering a bunch of expenses that won’t benefit them come tax time. In these instances, a standardized deduction can be more practical. This decision can vary from year to year, so it’s important to take a fresh look annually.

Have Questions About Tax Strategies?

The experienced tax professionals in Scottsdale and Prescott can help you determine appropriate tax strategies for your situation.

Request a call or send us a message to explore your options.

This material is intended for informational/educational purposes only and should not be construed as specific tax, legal or investment advice. Individual circumstances may vary.

Disclosure: Securities and advisory services offered through Commonwealth Financial Network®, Member www.FINRA.org/www.SIPC.org, a Registered Investment Adviser.  700 S. Montezuma Street, Prescott, AZ 86303. Phone: 928.778.7666.  The Financial Advisors associated with this website may discuss and/or transact business only with residents in states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state. Please check Broker Check for a list of current registrations. Information presented on this site is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any product or security.  Fixed insurance products and services are separate from and not offered through Commonwealth. Tax preparation and accounting services offered by Hosler Wealth Management, LLC are separate and unrelated to Commonwealth.  Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

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