Itemized deductions let you reduce your taxable income by listing eligible expenses you incurred during the tax year, rather than simply taking the standard deduction. This approach can lower your tax bill if your qualifying expenses add up to more than the standard deduction available for your filing status.
What Expenses Qualify as Itemized Deductions?
The IRS permits specific categories of expenses to be itemized on Schedule A (see our Schedule A (Itemized Deductions) page). Common deductible expenses include:
- Medical and dental expenses: Only the amount that exceeds 7.5% of your adjusted gross income (AGI) can be deducted.
- Home mortgage interest: Interest paid on a mortgage for your primary home, and sometimes a second home, up to certain limits. Learn more on our Mortgage Interest Deduction page.
- State and local taxes (SALT): You can deduct state and local income taxes or sales taxes, but the total limit for these is $10,000 per year.
- Charitable contributions: Donations to IRS-qualified organizations, with proper documentation.
- Casualty and theft losses: Only in federally declared disaster areas.
How to Decide Between Itemizing or Taking the Standard Deduction
The IRS updates the standard deduction amounts annually. For the 2023 tax year, the standard deductions are:
| Filing Status | Standard Deduction |
|---|---|
| Single | $13,850 |
| Married Filing Jointly | $27,700 |
| Head of Household | $20,800 |
To decide whether to itemize, add up your eligible expenses. If the total exceeds your standard deduction, itemizing will likely reduce your taxable income more.
Examples
-
Jane’s situation: Jane’s deductible expenses include $12,000 in mortgage interest, $4,000 in state income taxes, $2,000 in charitable donations, and $3,000 in medical expenses exceeding 7.5% of her AGI. Her total itemized deductions amount to $21,000, which is higher than the $13,850 standard deduction for a single filer in 2023. Itemizing benefits Jane.
-
Mike’s situation: Mike’s itemized deductions total $8,000, less than the $27,700 standard deduction for married filing jointly. In this case, he should opt for the standard deduction.
Who Benefits Most from Itemizing?
Itemizing is advantageous if you have:
- Significant mortgage interest expenses.
- High state and local tax payments.
- Large unreimbursed medical bills.
- Frequent charitable donations.
- Losses from federally declared disasters.
For those with simpler financial situations, the standard deduction is often easier and more beneficial.
Tips for Maximizing Itemized Deductions
- Keep thorough documentation: Save receipts, bank statements, and tax forms that verify your deductions.
- Consider bunching deductions: Timing your deductible expenses, like charitable contributions, into a single year may help exceed the standard deduction threshold.
- Use tax software or consult a professional: Tools and tax advisors can help determine whether itemizing is right for you.
- Stay informed: Tax laws related to deductions can change, so keep updated with credible sources like IRS.gov.
Common Mistakes to Avoid
| Mistake | Explanation |
|---|---|
| Failing to keep proper records | Without proof, deductions may be disallowed during an IRS audit. |
| Assuming all expenses are deductible | Many personal expenses do not qualify. |
| Overlooking deduction limits | Some deductions only apply above certain AGI percentages or caps (e.g., SALT capped at $10,000). |
| Choosing to itemize when not beneficial | If itemized deductions are less than the standard deduction, choosing to itemize can increase taxes. |
Frequently Asked Questions
-
Can I switch between itemizing and taking the standard deduction each year?
Yes, you can choose the method that yields the largest tax benefit annually. -
Do itemized deductions reduce tax dollar-for-dollar?
No, they reduce taxable income, and your tax savings depend on your tax bracket. -
Are all charitable donations deductible?
Only those made to IRS-qualified organizations with proper documentation qualify.
For further reading, see the IRS’s official guidance on itemized deductions vs. standard deduction.
By understanding and properly claiming itemized deductions, you can optimize your tax savings while staying compliant with IRS rules.
