Should You Itemise? Most People Should Not

I have itemised exactly once. It was the year I had a full twelve months of mortgage interest for the first time and gave an unusual amount to a friend's fundraiser, and I spent about six hours on it to save an amount of money I would rather not disclose.

Every other year I have taken the standard deduction without opening a single receipt.

The test is one subtraction

A deduction lowers the income your tax gets calculated on. You get a choice between two ways of claiming one.

The standard deduction is a flat amount the law sets based on your filing status. Itemising means adding up specific expenses that qualify and claiming that total instead. You take whichever number is bigger, and that is the entire decision.

What counts as an itemised expense

• State and local taxes, meaning income or sales tax plus property tax, subject to a cap set by law that has changed more than once.
• Mortgage interest on a qualified home, up to a debt limit that is also set by law and depends on when the loan was taken out.
• Charitable contributions to qualifying organisations, subject to limits expressed as a percentage of your income.
• Medical and dental expenses, but only the portion above a floor defined as a percentage of your adjusted gross income, which is why most people with ordinary medical bills get nothing here.
• Certain casualty and theft losses tied to federally declared disaster areas.

Look at what is absent. Credit card interest, car loan interest, your commute, work clothes, and for anyone paid on a W-2, the home office. Those come up every single year in my inbox and none of them go in this column.

A worked example

A married couple filing jointly, with an illustrative standard deduction of $28,000. All of these numbers are made up.

$21,000 against $28,000. They take the standard deduction, and every receipt they filed all year does nothing at all.

The gap is $7,000. At a 22 per cent marginal rate, closing that gap would be worth $1,540 of tax, and closing it means finding $7,000 more of qualifying expenses, which for most people means a substantially bigger mortgage.

Who actually clears the line

A large mortgage in its early years, because interest is front loaded and the first years of payments are mostly interest. A high property tax state, at least up to the cap. A year with a very large charitable gift. A year with serious uninsured medical costs, which is the one nobody plans for.

There is also bunching, which means pushing two years of charitable giving into a single calendar year so that one year clears the threshold and the next takes the standard deduction. It works, it is legal, and it is worth a conversation with a preparer before you try it.

One wrinkle before you throw the folder out. Several states let you itemise on the state return even when you took the standard deduction federally, and the state thresholds are often much lower. A total that loses federally can still be worth claiming at the state level, which is the one decent argument for keeping the numbers even after you know the federal answer.

What usually flips the answer is a change in your life rather than a change in the tax code. The year you buy a house. The year of a serious medical event. The year you sell appreciated stock and give a chunk of it away. Those are years to check rather than assume.

Do this

Total your itemised column once, on paper, this week. Mortgage interest from the statement your lender sends. Property tax from the bill. State income tax from last year's return. Charity from your bank records.

Compare the total to the current standard deduction for your filing status.

If you are not within a few thousand dollars of it, stop tracking receipts, throw out the shoebox, and give the time back to yourself. If you are close, that is the year to pay someone a few hundred dollars to look at it properly, because close is exactly where the decision starts being worth money.