Itemizing deductions in 2021 can reduce taxable income more than the standard deduction. We suggest itemizing deductions for 2020 taxes you’re filing in 2021 if the total amount you can claim is more than the standard deduction. Although the standard deduction for the 2021 tax season hasn’t been announced by the Internal Revenue Service, we expect it to be
- $12,600 for single/married filing separately
- $25,200 for married filing jointly/qualifying widow(er)
- $18,950 for head of household
If your itemized deductions is more than what you get in the standard deduction, itemize. If not, take the standard deduction instead. This is as easy as it gets when deciding whether you should claim the standard deduction or itemize.
As for the itemized deductions you can claim on your tax return in 2021, not much has changed compared to last year. Since the Tax Cuts and Jobs Act of 2017 changes will be effective between 2018 and 2025, most is the same. However, certain itemized deduction thresholds that are not related to TCJA of 2017 were moved up.
The qualifying medical expenses deduction which allowed taxpayers to claim qualifying medical expenses that exceed 7.5% of their AGI moved up to 10%. However, the 7.5% threshold will remain the same for the 2020 tax year. This is due to the extension signed on December 20, 2019. Other than this, there aren’t any notable changes to existing deductions.
Existing and Removed Deductions
Just like how it was in 2018, you will be able to claim the following deductions if itemize.
- Medical Expenses
- Property, State and Local Taxes (SALT)
- Mortgage Interest
- Charitable Donations
- Casualty and Theft Losses
- Gambling Losses
Although the above deductions remain the same as they are, a partial amount of these deductions have been lost. Also, there are deductions that are lost for the 2021 tax season. These include
- Tax preparation expenses
- Unreimbursed employee expenses
- Natural disaster losses for areas not declared as a disaster area
- Alimony payments for divorce agreements
While the above deductions have been removed entirely from the U.S. tax code, the State and Local Taxes deduction is capped at $10,000. The mortgage interest deduction, on the other hand, has a loan amount limit at $750,000. However, if the loan incurred before December 16, 2017, the $1 million loan amount limit still applies.
All and all itemizing in 2021 comes down to whether or not you can keep the deductions you can claim in previous years. With the increased standard deduction, itemizing becomes a lot more obsolete but if you’re in middle to higher tax brackets, you surely will want to itemize deductions.