|
Since we haven't yet reached year end, you still have some time to take actions that could increase your total itemized write-offs to the point where they exceed your 2023 standard deduction allowance. However, not everyone has the flexibility to do so. Standard Deduction Amounts for 2023 For 2023, the basic inflation-adjusted standard deduction allowances are:
Taxpayers who are age 65 or older or blind are entitled to additional standard deduction allowances. For 2023, the additional amounts are:
Standard Deduction Amounts for 2024 Next year, the basic standard deduction allowances will increase to:
For 2024, the additional standard deduction allowances for those who are 65 or older at the end of the tax year or blind are:
Last-Minute Tips to Increase Itemizable Expenses If your total itemizable deductions for this year will be close to your standard deduction allowance, you may be able to make enough additional expenditures for itemized deduction items before year end to surpass your standard deduction. Those extra expenditures will allow you to itemize and reduce your 2023 federal income tax bill. Next year, you may or may not be able to do the same thing. If you can't, you can claim the 2024 standard deduction. It will increase roughly 5.4% in 2024 thanks to the annual inflation adjustment. The easiest itemizable expense to prepay is included in house payments that are due on January 1, 2024, for your primary residence or vacation home. Making that payment before year end will allow you to deduct home mortgage interest expense for 13 months (instead of 12 months) for 2023. Although the Tax Cuts and Jobs Act put stricter limits on home mortgage interest deductions, you may be unaffected. But check with your tax advisor to be sure. Important: If you took advantage of this strategy in 2022, you'll have do it again this year to have 12 months' worth of mortgage interest expense this year. But that only matters if you itemize this year. Other options to consider include:
There are a couple limitations to watch out for, however. For example, current tax law limits the maximum amount you can deduct for all state and local taxes combined to $10,000 per year ($5,000 if you're married and filing separately). In addition, you can deduct medical expenses only to the extent they exceed 7.5% of your adjusted gross income for the year. Limited-Use Strategy Not everyone will have the flexibility to take actions that will cause their total itemizable write-offs to exceed their standard deduction allowance. So, itemizing isn't always a choice for a particular tax year. But when it's a choice, it usually makes sense to itemize. If your itemizable write-offs are typically close to your standard deduction allowance, the tax-smart strategy in your situation is to itemize in one year and then claim the relatively generous standard deduction the following year. Over the two-year period, your taxes will be lower. Looking Ahead Today's high standard deduction amounts are scheduled to expire after 2025. Without future legislation, the amounts will drop significantly in 2026. If that happens, you'll have to reassess your tax situation. In the meantime, discuss any questions about itemizing deductions with your tax advisor. |
Once the 2023 tax year is over and the numbers are generally set in stone, you can itemize deductions on your federal income tax return if your total allowable itemized write-offs for the year exceeds your standard deduction allowance for the year. Otherwise, for 2023, you will claim the standard deduction, which is relatively high under current tax law.
Post Comment