To Itemize or Not to Itemize?

January 10, 2019

To be or not to be…Or should I say to itemize or not to itemize?

Under prior tax law the year end planning advice was fairly simple: defer income and accelerate deductions. Except of course if the rates will be lower next year. For 2018 the rates are lower, but there are some other changes that make the simple answer for year-end tax planning not so simple.

In fact, the new law has drastically changed the way we approach tax planning. Under the new law the most effective method for tax planning is a multi-year approach. Planning over several years can insure you get the most out of the opportunities provided by the new law. In addition, through a multi-year planning approach we can avoid many of the pitfalls of the new law as well.

Some folks will undoubtedly come close to the new standard deduction with the changes to the itemized deductions. One of the biggest changes is in the doubling of the standard deduction

  Was Now
Married Filing a Joint Return 13,000 24,000
Single or Married Filing Seperate 6,500 13,000
Head of Household 9,550 18,000


If your past itemized deductions were over the new standard deduction you will likely continue to itemize unless the other changes* noted below effect your total itemized deductions.

But what about those of you that seemingly just changed from Itemized to standard deductions? Is there anything you can do? What if your itemized deductions typically came in above the old standard deduction but below the new standard deduction? Are you relegated to only taking the standard deduction moving forward? Not necessarily, in years past folks close to the standard deduction with itemized deduction were able to “bunch” deductions to allow them to get over the standard every other year.

The technique is somewhat simple but requires multi-year planning to pull it off. The fly in the ointment moving forward is that some techniques that worked in the past may not work under the new laws. Bunching of the state tax deduction may not work if the “bunched“ year state and local taxes exceed $10,000 for the bunched year. Charitable deductions are most effectively “bunched” by using certain investment funds (i.e. donor advised funds). You receive a deduction for the year in which you make the contribution, rather than the year of distribution of the funds.

Total benefit by bunching deductions over two years is $58,000 of deductions (40,500+ 17,500)

Obviously, this example was created to demonstrate that the use of multi-year tax planning can work for certain taxpayers. Your results may vary depending on your situation. However, for those taxpayers that fall into that middle area between prior years itemizing and current year standard deductions multi-year planning could save you significant tax dollars by bunching your deductions in alternating years 

 DEDUCTIONS   CURRENT   CURRENT NEW STANDARD  BUNCHING YEAR 1 BUNCHING YEAR 2
 Real Estate Tax $2,000 $2,000 $2,000 + $2,000 prepaid $0 all prepaid year 1
State Tax $3,000 $3,000 $3,000 + $3,000 $0 all prepaid year 1
Mortgage Int. $6,500 $6,500 $6,500 $6,500
Chairtable Donations $12,000 $12,000 $12,000 + $12,000 to Donor Advised Fund $0 Deducted Donation paid from Donar Advised Fund year 1-12K
Total Itemized Deductions $23,500 $23,500 $40,500 $6,500
Standard Deduction $13,000 $24,000 $24,000 $24,000
Benefit From Itemizing $10,500 $0 - Gain benefit of $500 from new standard Tax savings on $16,500 of itemized deduction ($40,500-$24,000)

Claim Standard - benefit $17,500($24,000-$6,500)

 *Other changes to Itemized Deductions mentioned above that effect whether a person can itemize:

  • Limitation of the State and Local Tax deduction to $10,000.
  • The new mortgage interest deduction limitations and the elimination of the deduction for home equity interest. New mortgages (After December 15, 2017) deduction is limited to interest on $750,000 of principal. The limit is still 1 million for mortgages prior to December 15, 2017.
  • Complete elimination of Itemized deductions subject to the 2% limitation of adjusted gross income.

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