Debating between itemizing and taking the standard deduction? Here are some expenses to consider. Also, new for 2018 filings: in Maryland, you have to pick – if you choose to itemize on your Federal return, you have to itemize on your state return. Let’s discuss it together and let us help you decide which is the best way forward for your personal tax situation.
- Medical Expenses – Medical expenses that exceed 7.5 percent of your Adjusted Gross Income can be deducted as itemized deductions. Deductible medical expenses include, co pays, hospital bills, dental expenses, prescriptions, medical equipment including hearing aids and glasses, chiropractors, psychiatrists, medical mileage at a rate of 18 cents per mile, and in many cases some of the cost of assisted living expenses. Medical insurance and long-term care premiums are also deductible if you pay for them with after tax dollars. Over the counter medicines are not deductible.
- State and Local Taxes – Taxes you pay to the state for income taxes and real estate taxes are deductible up to $10,000 for taxpayers filing married filing joint or single and $5,000 for taxpayers filing married filing separate. In some rare cases it is better to deduct your sales tax expenses rather than your state and local income taxes. You have to choose one or the other though.
- Mortgage Interest – Mortgage interest on your first and second homes are deductible up to a mortgage amount of 1,000,000 of loans under the old law and 750,000 under the new law. In some cases a boat can qualify as a second home. Home equity loans are also still deductible in some cases. If you are unclear whether your home equity loan is deductible please call our office to discuss.
- Charitable Contributions – Donations made to charitable organizations and other 502C 3 organizations are deductible if you itemize your deductions on your tax return. Cash, checks as well as clothing, household items and other goods donated to these organization can be itemized as deductions on your schedule A.
- Miscellaneous Deductions – Unreimbursed business expenses for W-2 employees are no longer deductible. Tax prep fees and investment fees are also no longer deductible as of tax year 2018.
When deciding whether to itemize your deductions or take the standard deduction you should look at the impact on both your federal and state taxes. If you choose to take the standard deduction for your federal income tax return and you live in Maryland then you must also take the standard deduction on your Maryland income tax return. If you choose to itemize deductions on your federal tax return then you must itemize your deductions on your Maryland income tax return as well. You should look at both tax returns both ways in many cases to determine which method will give you an overall larger tax savings.