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A lot of federal income tax deductions will be out of reach for millions of taxpayers next year.
In some cases, it’s because the recent tax code overhaul ended, suspended or limited the deductions effective in tax year 2018 — the return you will file by next April. In other cases, it will not be in your financial interest to claim the deductions, because you will do better if you instead claim the higher standard deduction that kicks in this tax year.
In this regard, the new standard deduction is a double-edged sword — lowering your taxable income while taking off the table deductions you might have claimed in the past.
How it helps
The standard deduction for tax year 2018 will be nearly double what it was for 2017, as we detailed in “4 Good — and Bad — Changes for Next Year’s Tax Return.”
For taxpayers who claim the standard deduction next year, this basically means that less of their income will be subject to federal income taxes.
For example, a married couple filing a joint tax return next year will not be taxed on the first $24,000 of their 2018 income — compared with not being taxed on the first $12,700 of their 2017 income.
How it hurts
Far fewer taxpayers are expected to itemize their tax deductions — rather than claim the standard deduction — next year. Congress’ Joint Committee on Taxation has estimated that only about 18 million returns will include itemized deductions for tax year 2018 — down from 46.5 million for tax year 2017.
It generally only makes sense to itemize deductions if the total amount of your itemized deductions exceeds the amount of your standard deduction. But such cases will be less likely with some deductions ended, suspended or limited, and with the standard deduction higher under the revised tax code.
According to the IRS, itemized deductions can include:
- Medical and dental expenses
- State and local taxes
- Mortgage interest
- Donations to charity
So, if you are among the millions of taxpayers who itemized deductions for 2017 but will take the standard deduction for 2018, you no longer will be able to write off these expenses next April.
For more tips, check out:
- “4 Ways to Slash Your 2019 Tax Bill Right Now“
- “How Retirees Can Avoid a Surprise Federal Tax Penalty in 2019“
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