1

The federal standard deduction for married filing jointly in 2019 is $24,400.

The Maryland state standard deduction is only $4,550 and you cannot itemize on your state return unless you itemize on your federal return.

This means your combined tax bill could be lower by itemizing, even if your itemized deductions add up to less than the standard deduction.

Has anyone come up with a formula to determine that break-even point?

2

It depends on a variety of factors including whether you're married and how high your income is. In general, Maryland state income taxes are around 5%, which is likely considerably lower than your marginal federal tax rate if you're considering itemizing deductions. Therefore, your deductions would likely have to be close to the federal standard deduction to break even. The amount of money you save by itemizing deductions would be

(m * (d - 4550)) - (f * (24400 - d))

where m is your Maryland state marginal tax rate, f is your federal marginal tax rate, and d is the amount of your deductions. The first part of the equation is the amount you save on your state taxes by itemizing. The second part is the amount you lose in your federal taxes by itemizing instead of taking the higher standard deduction. If the result of the whole equation is greater than 0, it's worth it to itemize.

If your marginal state tax rate is 4.75% and your marginal federal tax rate is 22%, you'd need at least $20,875.20 of deductions for it to be worth it to itemize.

There are a few factors that could complicate this somewhat. For example, if your state has slightly different rules from the federal government for what can be deducted from income you'd have to factor that in. It's also possible that your deductions could cause your income to cross over a tax bracket threshold, resulting in a couple marginal tax rates applying to a fraction of your deductions. I've ignored these factors for the sake of simplicity and because they won't make a huge difference in the calculations in most cases.

3
  • 3
    Unfortunately the rules for deductions can vary between the state and federal tax systems. So D is really DS and DF. – mhoran_psprep Mar 2 '20 at 3:27
  • 1
    @mhoran good point. Although in most states the difference between federal and state deductions isn't much. It's also possible that the deductions would cross over a tax bracket threshold resulting in multiple marginal tax rates for parts of the deductions. For the sake of simplicity I haven't factored in those possibilities. – Daniel Mar 2 '20 at 12:39
  • At least in Maryland it seems like some state-specific deductions, notably 529 contributions, are subtracted independently of itemized deductions. – wrschneider Mar 2 '20 at 16:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.