What is the difference between the standard deductions and itemized deductions?
You are probably asking what are the differences between standard deductions and itemized deductions. When you file your tax return, you have the option of reducing your taxable income in one of two ways. The first option, called the standard deduction, is a flat dollar amount that varies based on your filing status. In 2017, the Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction from $6,500 to $12,000 for single filers and $13,000 to $24,000 for married taxpayers filing jointly. The deduction is even higher for taxpayers who are over age 65. The second option is to use a method called itemizing deductions. If you elect to itemize on your tax return, your taxable income will be reduced by the sum of certain individual tax deductions allowed by the IRS, which could exceed the standard deduction.
How can I stack tax deductions?
Wondering how to stack tax deductions? The most feasible way to itemize on an alternating basis is by combining large, supplementary or irregular itemized deductions on top of the smaller, recurring, itemized deductions. For instance, you may choose to make a large charitable donation in a year in which you also paid a big medical bill. Stacking these two payments on top of your recurring expenses for mortgage interest, property taxes, and state taxes paid may push the sum of your itemized deductions over the standard deduction threshold. To facilitate a large charitable donation, you may wish to consider opening a Donor Advised Fund (DAF), which allows for a large upfront charitable deduction while maintaining the flexibility to distribute the assets to charities over time.
Investment advice offered through Stratos Wealth Partners, Ltd., a Registered Investment Advisor DBA Brown Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.