by: Hirsch Serman, MBA, CPA, CDFA
This is a great question, and not a simple answer. In fact, many people do not understand how this works and process it wrong when filing their taxes. Everyone gets a standard deduction. The amount of this standard deduction is based off of your filing status (for example the standard deduction for the 2023 tax year filing as head of household = $20,800 and single = $13,850). To get the benefit of itemizing your deductions, your total of items you can deduct must be greater than the standard deduction for your filing status. For a filer with a filing status of head of household, you need itemized deduction of greater than $20,800. There are several categories of items that can be deducted and it is a combination of these categories’ totals that needs to exceed the standard deduction to make it worthwhile to itemize. Some of the more common categories include:
- Medical expenses (not paid by another party like insurance and not healthcare premiums, there are other premiums that may be eligible like long term care)
- State and local taxes (SALT), which are capped at $10,000 (examples include real estate taxes, state income taxes etc.)
- Mortgage interest (there may be a limit on the interest if the average balance of you mortgage is greater than $750,000)
- Charitable deductions (rarely do I see clients have a limit on these).
The medical expenses do have a twist. Only the qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI) are included in the total described above. For example, if someone has an AGI of $100,000, then qualifying medical expenses over $7,500 will count towards the itemized deduction total in combination with the expenses from the other categories (mortgage interest, charitable contributions, SALT etc.).
I hope this helps and please reach out if you have any questions.
Hirsch Serman, MBA, CPA, CDFA is the founder of Lifecycle Financial LLC, a company that helps those going through Divorce and other life cycle transitions to navigate the financial pitfalls of a new life dynamic. The company was founded through personal experiences in divorce and watching the changes in an aging parent. He has worked in finance for over 20 years (including financial planning and tax) and has taught on the university level as well as conducted seminars for Fortune 100 companies as well as high school youth on personal finances. He is a member of the Institute of Divorce Financial Analysts, The Amicable Divorce Network, American Institute of CPAs, The Chicago Bar Association, and the Memphis Bar Association.
Listen to Hirsch’s radio show The Financial Wellness Hour ( https://lifecycle.financial/financial-wellness-radio-show/)
INC., US News & World Report, DivorcedMoms.com, DivorceMag.com, Better, Authority Magazine, The Memphis Business Journal, The Financially Independent Millennial, and Funding Sage media outlets have all covered his work in Divorce. Hirsch has a passion to serve others and has s numerous non-profit boards including The Lilac Tree, First Year Forward, the United Way and is a Trustee on the Board of Texas College. Please reach out with any comments to [email protected].