You’ll hear this a lot this upcoming tax season: “The standard deduction has doubled. No reason to itemize.” You might even hear, “Just use the standard deduction, and you’ll get more tax money back.”

You will start to hear this from our President, the media, your friends, brochures, but not from a true financial professional

Yes, the standard deduction is an “automatic deduction based on filing status” that one can take unless they can itemize, and if that amount is more, then of course you would itemize and take the higher amount. So yes, there is some truth that, for a single person, if that standard deduction went from $6,100 (2017) to $12,000 (2018), then yes, that is an extra $6,100 of free deductibility. So far the front side of the coin looks wonderful.

But now comes the Three-Card Monte trick.

Exemptions are now eliminated from the IRS code. An exemption is that $4,000 deduction you get, per person, for being in the home. I explain to my clients to think of it as your “household deduction.”  So if you’re single you get a $4,000 exemption. Married, that’s two or $8,000. Three in the home (a child); that $12,000 in exemptions.

So yes in 2017, a single person, for example, would have received an automatic two-part deduction:
        2017
Standard Deduction: $6,100
Exemption:                  $4,000
Gain of Deductibility: $10,100

Based on a fed tax bracket of 25 percent, that’s $2,600 of tax savings.

But now we are walking into tax season 2018 where the standard deduction has doubled and exemptions are eliminated.

So how does it look for that single person now:

Single 2017                     2018
Standard: $6,100         $12,200
Exemptions: $4,000        $0.00
Net Gain: $10,100        $12,200

Wonderful! This $2,100 of extra deductibility that (in a 25 percent fed bracket) will bring them an extra $600 in their refund.

So you would think if a single person had a child, they would receive more, right?

Head of Household (one child)
2017           2018
Standard:      $9,175     $18,350
Exemptions: $8,000         $0.00
Net Gain:     $17,175    $18,350

This $1,175 of extra deductibility savings will bring an extra $294.

So yes, on the surface, “doubling the standard deduction” can work. it can bring you more money (so obviously if you can itemize, you can get back even more).

Let’s try that math again on the same “head of household” person and assume she had two kids instead of one, using the same 2017 and 2018 tax rules.

Head of Household
One child    Two kids    Two kids (If exemptions kept at $4,000)
2017              2018           2018 
Standard:     $9,175    $18,350  $18,350
Exemptions: $8,000      $0.00    $ 12,000
Net Gain:       $17,175   $18350  $30,350
Extra in Refund:               $294       $3,000

Hmmm, so by getting rid of the exemption rules while  doubling the standard deduction, this person lost tax deductibility money, from 2017 to 2018. And the $12,000 in lost deductibility (from 2018-2018) based on a 25 percent fed tax bracket, would have brought this person back $3,000 (**) instead of the expected $,1,175 in deductibility, which will bring only an extra $294 in their refund.

Now let’s try that marriage scenario-with no child

Married (no children)
2017          2018
Standard:        $12,200   $24,400
Exemptions:    $8,000        $0.00
Net Gain:        $20,200    $24,400

This $2,200 of deductibility savings will bring an extra $650 in their refund.

Let’s try the marriage scenario with one child.

Married           2017         2018 (No Children)     2018 (One Child)
Standard:      $12,200        $24,400                      $24,400
Exemptions:    $8000         $0.00                        $12,000
Net Gain:    $20,200.         $24,400                      $36,400

While the new law will bring an extra $2,200 in deductibility (2017-2018), which will bring an extra $650 in their refund, if the government would have kept the exemptions (2018-2018) the deductibility an extra $12,000, which would have brought an extra $3,000 in their tax refund instead. So did they gain $650 it lose $3,000 (or $2,350 net)?

So, it looks like fuzzy math from both sides of the coin. Doubling the standard deduction gives you extra free deductibility while the loss of exemptions takes most of the prior deductibility away, just like a Three-Card Monte game.

And since exemptions change the game more than the doubling of the standard deduction, once you have (in our math) a total of more than two people in the household, you’re gaining crumbs while losing more loads of bread.

Anthony Rivieccio is the founder and CEO of The Financial Advisors Group, celebrating its 20th year as a fee-only financial planning firm specializing in solving ones financial problems. Mr. Rivieccio, a recognized financial expert since 1986, has been featured by many national and local media including: Klipingers Personal Finance, The New York Post, News 12 The Bronx, Bloomberg News Radio, BronxNet Television, the Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Bronx News, and The Bronx Chronicle. Mr Rivieccio is also currently an Adjunct Professor of Business , Finance & Accounting for both,  City University of New York & Monroe College, a Private University.  For financial assistance , Anthony can be reached at  (347) 575-5045. If you would like a FREE copy  of our 2018 Tax e-Guide just give our office a call. Feel free to visit their FACEBOOK Business page for past Financial Focus articles:  www.facebook.com/iwantmytaxmoney