Leaving the seam intact will keep your finished T-shirt from unravelling and looking shabby. It will also make a smaller armhole. For a baggy T-shirt, this is a good approach. Cutting out the seam with the sleeve is a more casual look, and because the hole is larger, a little more comfortable as well. If the armhole is going to be too deep, modify your cut. Instead of following the seam all the way around the sleeve, when you are about 2/3s down the sleeve, angle out into the bottom of the sleeve. When you reach the bottom seam of the sleeve, reverse the angle and cut back in towards the shirt seam, leaving a triangle of shirtsleeve at the bottom of the hole. Trim that to fit.
If you are cutting out the seam, follow your chalk lines, and cut as smoothly as you can to avoid a jagged look. Repeat on the other sleeve. Keep the sleeves for future projects.
