What Are Itemized Deductions?
An itemized deduction is an expense that can be subtracted from your adjusted gross income (AGI) to reduce your taxable income and lower the amount of taxes you owe. Taxpayers can choose to itemize deductions like mortgage interest, charitable gifts, and unreimbursed medical expenses, or opt to take the standard deduction—a fixed dollar amount that varies by filing status.
Key Takeaways
- An itemized deduction is an expense that can be subtracted from adjusted gross income to reduce your tax bill.
- Itemized deductions must be listed on Schedule A of Form 1040.
- Taxpayers can choose to itemize deductions or claim the standard deduction that applies to their filing status.
Understanding Itemized Deductions
Itemized deductions reduce your taxable income, and your savings depend on your tax bracket. Suppose an unmarried single filer with a gross income of $80,000 claims itemized deductions totaling $15,000. Subtracting those deductions from gross income yields a taxable income of $65,000, which falls within a 22% marginal tax rate bracket for 2023 and 2024.
Itemized deductions are recorded on Schedule A of Form 1040. Taxpayers must save all receipts and documentation of expenses reported in case the Internal Revenue Service (IRS) requests them in an audit. Proof can include bank statements, insurance bills, medical bills, and tax receipts from qualified charitable organizations.
Tax deductions should not be confused with tax credits, which directly reduce your tax bill. If you calculate your taxes due as $14,000 and are eligible for a $1,000 tax credit, your bill is cut by $1,000 to $13,000.
Itemized Deduction vs. Standard Deduction
The majority of taxpayers have the option to itemize deductions or claim the standard deduction. Nonresident aliens must itemize, and married individuals who are filing separately, both must claim the same type of deduction.
The decision depends on which deduction type garners the lowest tax liability. If you file as a single taxpayer or are married and filing separately, you will fare better with the standard deduction of $13,850 for 2023 or $14,600 for 2024 if your itemized deductions total less than that amount.
| Filing Status | 2023 Standard Deduction | 2024 Standard Deduction |
|---|---|---|
| Single | $13,850 | $14,600 |
| Married Filing Separately | $13,850 | $14,600 |
| Head of Household | $20,800 | $21,900 |
| Married Filing Jointly | $27,700 | $29,200 |
What Can I Itemize?
The list of expenses that can be itemized is extensive and can include some medical expenses, mortgage interest, charitable contributions, and state and local taxes. Taxpayers use Schedule A, part of IRS Form 1040, to calculate and list deductions.
You can download Schedule A from the IRS website.
What Can You Itemize?
Deductions You Can Itemize
- Mortgage interest on the first $750,000 of indebtedness—or $1 million if you bought the home before Dec. 16, 2017
- Charitable contributions up to 60% of AGI
- Medical and dental expenses over 7.5% of AGI
- State and local income, plus either personal property or sales taxes up to IRS threshold
- Gambling losses up to the total amount won
- Investment interest
Deductions You Cannot Itemize
- Mortgage interest on loan amounts over $750,000, unless you bought your home before Dec. 16, 2017
- State and local income, sales, and personal property taxes beyond IRS threshold
- Unreimbursed employee expenses
- Tax preparation expenses
- Natural disaster losses unless in a federally declared disaster area
What Does It Mean to Claim Itemized Deductions?
When you file your income tax return, you can take the standard deduction, a fixed dollar amount based on your filing status, or you can itemize your deductions. Unlike the standard deduction, the dollar amount of itemized deductions will vary by taxpayer, depending on the expenses on Schedule A of Form 1040. The amount is subtracted from the taxpayer’s taxable income.
Which Expenses Can I Itemize?
You itemize your deductions on Schedule A of Form 1040. Generally, you can deduct unreimbursed medical and dental expenses, long-term care premiums, home mortgage interest, charitable donations, certain taxes, casualty and theft losses, and some gambling losses.
Who Should Itemize Deductions?
You have the option to take the standard deduction or itemize your deductions. If the value of expenses you can itemize is greater than the standard deduction, then it likely makes sense to itemize.
What Are the Standard Deduction Amounts for 2023 and 2024?
For single taxpayers and those who are married but filing separately, the standard deduction is $13,850 in 2023 and $14,600 in 2024. For heads of households, the standard deduction is $20,800 in 2023 and $21,900 in 2024. For taxpayers who are married and filing jointly, the standard deduction is $27,700 in 2023 and $29,200 in 2024.
The Bottom Line
An itemized deduction is an expense that can be subtracted from your adjusted gross income (AGI) to reduce your tax bill. Taxpayers can choose to itemize deductions or claim the standard deduction that applies to their filing status. Itemized deductions must be listed on Schedule A of Form 1040 and may include mortgage interest, charitable gifts, and unreimbursed medical expenses.
Related Terms: Adjusted Gross Income (AGI), Taxable Income, Tax Bracket, Tax Liability, Tax Credit.
References
- Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2024”.
- Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2023”.
- Internal Revenue Service. “About Schedule A (Form 1040), Itemized Deductions”.
- Internal Revenue Service. “Topic No. 305, Recordkeeping”.
- Internal Revenue Service. “Credits and Deductions for Individuals”.
- Internal Revenue Service. “Topic No. 501, Should I Itemize?”
- Internal Revenue Service. “Schedule A (Form 1040), Itemized Deductions”.
- Internal Revenue Service. “Publication 936, Home Mortgage Interest Deduction”, Page 1.
- Internal Revenue Service. “Publication 526, Charitable Contributions”, Pages 14-15.
- Internal Revenue Service. “Topic No. 505, Interest Expense”.
- Internal Revenue Service. “Topic No. 419, Gambling Income and Losses”.
- Internal Revenue Service. “Topic No. 502, Medical and Dental Expenses”.
- Internal Revenue Service. “Topic No. 503, Deductible Taxes”.
- Internal Revenue Service. “Tax Basics: Understanding the Difference Between Standard and Itemized Deductions”.
