This is our sixth installment of our monthly tax blog on the Tax Cuts and Jobs Act. Today, I will be addressing a question we (here at Isler) have been getting, and which we know has been on some of your minds lately, and that is, “With the new standard deduction, do I still need to keep my receipts for my charitable contributions and other itemized deductions?”
Overview
Before jumping into answering the question, I think it is important we review a few things first.
To begin with, the Internal Revenue Code allows individual taxpayers to reduced their adjusted gross income by the greater of 1. The standard deduction or 2. Their itemized deductions.
Itemized deductions include health expense, state taxes, property taxes, mortgage interest, and charitable contributions to name a few.
The standard deduction for Pre and Post-Tax Cuts and Jobs Act (“TCJA”) are as follows:
| Filing Status | Pre-TCJA | Post-TCJA |
|---|---|---|
| Single | $6,350 | $12,000 |
| Married Filing Joint | $12,700 | $24,000 |
Issues
As you can see, the standard deduction nearly doubled under the Post-TCJA. This significant increase in the standard deduction has left many wondering whether they even need to worry about qualifying to take itemized deductions in 2018 or forward.
According to the IRS, about 30% of tax filers took the itemize deduction, rather than the standard deduction, prior to the TCJA. However, this number is expected to decrease to 10% , post-TCJA, according to the Tax Policy Center. Therefore, taxpayers concerns are well founded, when asking whether they still need to keep their receipts in order to take the itemized deduction, because it is more likely they are going to be taking the standard deduction.
Answer
At first glance, it does make sense that if a taxpayer is planning on taking the standard deduction they don’t need to keep their receipts or track other itemized deductions.
However, here in Oregon, we need to keep in mind that taxpayers are allowed to take the greater of their itemized deductions (not including state taxes) or the Oregon standard deduction on their Oregon individual tax return. The reason why this is important is because the Oregon standard deduction is as follows for 2018:
| Filing Status | Oregon Standard Deduction |
|---|---|
| Single | $2,215 |
| Married Filing Joint | $4,435 |
As you can see, the Oregon standard deduction is significantly lower than the federal standard deduction. In addition, Oregon also allows taxpayers to choose whether they take the itemized or standard deduction. Therefore, there may be situations where a taxpayer may take the standard deduction of $12,000 or $24,000 on their Federal tax return, but take itemized deductions on their Oregon tax return.
A situation where this could happen would be if there was a taxpayer who was married filing joint and had charitable contributions of $14,000 and no other itemized deductions. Under the Pre-TCJA, the taxpayer would have taken itemized deductions for Federal and Oregon purposes because the $14,000 exceed both the Federal and Oregon standard deductions.
However, under the Post-TCJA, the taxpayer would take the Federal standard deduction of $24,000, because it exceeds their itemized deductions of $14,000, and would take itemized deductions for Oregon purposes, because the $14,000 itemized deductions exceeds the Oregon standard deduction of $4,435.
Finally, when it comes to substantiation of deductions, Oregon follows the IRS rules. This means that if you make a donation, you need to have a written acknowledgment from the charitable organization, if the donation is $250 or more.
Therefore, to summarize and to circle back to the original question of, “With the new standard deduction, do I still need to keep receipts for charitable contributions and other itemized deductions?”, the answer is yes, if you think you will be taking Oregon itemized deductions, even if you plan on taking the Federal standard deduction.
Closing
As a closing thought the example given above is a very simplified example. Every taxpayer’s facts and circumstances are different. Therefore, if you have questions about whether you should be taking itemized or standard deductions for 2018 on your Federal or Oregon return, I recommend that you consult with your tax advisor.