The theme this week on the Retirement Quick Tips Podcast is: Analyze Your Tax Return Like A CPA.

Today, I’m talking about tax deductions. The place to start better understanding your tax deductions is by looking at your tax return to see if you claimed the standard deduction in 2021 or if you itemized your deductions instead. Whether you itemize or claim the standard deduction can change from year to year, so it’s helpful to understand whether or not you’re likely going to keep claiming the standard deduction or if you will itemize in 2022. For this I recommend better understanding some of the biggest types of deductions you can itemize, and also looking back a few years to see the history of what you did over multiple years. 

More people will choose to claim the standard deduction, which will be $25,900 this year if you’re married, or $12,950 if you’re single. 

Itemizing vs. taking the standard deduction has several implications for your investment and retirement planning decisions. The most common itemized deductions are those for state and local taxes (aka SALT), mortgage interest, charitable contributions, and medical and dental expenses. If you’re claiming the standard deduction, then these tax deductions won’t benefit you, unless you itemize instead and the itemized deduction amounts to a higher amount that you would have claimed on the standard deduction. 

I know this is getting a little technical, but here’s why it matters: Knowing whether or not you itemize or if you claim the standard deduction will help inform your strategy on important financial planning decisions like charitable giving and paying off your house early. 

Many people believe that they’re still benefiting somewhere on their taxes from their mortgage interest deduction, and other itemized deductions, so they don’t mind having a mortgage payment because someone at some point told them they were getting a tax break for keeping that mortgage payment. But all of that goes out the window when you claim the standard deduction and don’t itemize. No more SALT deduction, no more mortgage interest deduction, and no tax benefit on certain charitable contributions. 

I’ll actually talk more about charitable giving later this week, but for now, check out your tax return to see if you itemized last year or claimed the standard deduction, and know that if it’s better for you to claim the standard deduction, you may want to be more strategic with your charitable giving and mortgage payoff decisions. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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