01 May Should I itemize or use the standard deduction?

Q. I am residing in New Jersey with my wife and two kids. My adjusted gross income for 2023 was $183,000. I am filing it as married filing jointly as we have two W2 documents. During the year, I paid $5,000 of medical bills, $9,000 in daycare expenses and I have a cryptocurrency loss of $3,300 carried over from last year. I also paid COBRA health insurance premiums of $17,800, or $1,480 per month, for my wife and kids only, and it was from my wife’s former employer. My health insurance is separate and provided by my employer. I also have a home loan in my home country — India — for $1,180 per month. How can I decide if I should use itemized deductions or the standard deduction?
— Taxpayer

A. Let’s start by saying we hope you filed your taxes, or got an extension, by the April 15 deadline.

And let’s also say we hope you work with a tax preparer who can look over the whole of your tax status.

But here’s what you should consider for the 2024 tax year as you plan ahead.

As a married filing joint taxpayer, the federal tax rules provide you with a $29,200 standard deduction for the 2024 tax year, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

That amount needs to be compared with the total of your allowable itemized deductions, he said.

Based on the information you provided, those would include medical expenses over 7.5% of Adjusted Gross Income (AGI). You cited medical bills of $5,000 and COBRA payments of $17,800 for total medical expenses of $22,800.

Based on your adjusted gross income, your deductible medical expenses would be $9,075, Papetti said

Your state income taxes and real estate taxes are limited to a maximum deduction of $10,000, Papetti said.

Based on an AGI of $183,000, we’re assuming you have at least $10,000 of New Jersey state income taxes paid, he said.

Then there’s mortgage interest. This is deductible on mortgages secured on primary and secondary personal residences up to a combined mortgage limit of $750,000, he said. The loan in India does not qualify.

You didn’t mention any charitable contributions or casualty theft and losses.

Based on all those numbers, you would take the standard deduction of $29,200 rather than your itemized deductions of $19,075, he said.

Papetti said your daycare expenses don’t help with itemized deductions.

“If you paid someone to care for your child or other qualifying person so you — and your spouse if filing jointly — could work or look for work, you may be able to take the credit for child and dependent care expenses,” he said.

To qualify for the credit, you must have one or more qualifying persons.

“The maximum amount of work-related expenses you can take into account for purposes of the credit is $6,000 if you have two or more qualifying persons even if you only incurred expenses for just one of them,” he said.

Based on AGI of $183,000 you would be eligible for a 20% credit of the $6,000 limit or $1,200, he said.

Of your capital losses, they can be deducted against capital gains and $3,000 of any excess capital losses can be used to reduce other taxable income, he said.

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This story was originally published in April 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.