Itemized Deductions
Itemized deductions are eligible expenses that individual taxpayers can claim on their federal income tax returns to decrease their taxable income. Taxpayers can choose to itemize deductions in place of taking a standard deduction if available. The choice between itemized deductions and the standard deduction involves several considerations, such as eligibility, the amount of deductions, and the potential for adjustment by the Internal Revenue Service (IRS) .
Types of Itemized Deductions
Common types of itemized deductions include:
- Mortgage interest on up to two homes
- State and local income or sales taxes
- Property taxes
- Medical and dental expenses that exceed 7.5% of adjusted gross income
- Charitable donations
How to Claim
To claim itemized deductions, taxpayers need to maintain records of all their expenses and complete and file a Schedule A with their tax return. Its important to note that some itemized deductions, such as medical expenses, have specific rules and limitations, and taxpayers may need to spend extra time preparing their returns if they choose to itemize.
Comparison with Standard Deduction
Taxpayers should compare their total itemized deductions to the standard deduction amount for their filing status. If the total itemized deductions exceed the standard deduction, itemizing can lead to greater tax savings. However, if the amounts do not differ significantly, taking the standard deduction may be preferable to reduce the possibility of IRS adjustment.
In summary, itemized deductions provide taxpayers with the opportunity to reduce their taxable income by claiming eligible expenses, but it requires careful consideration and record-keeping to ensure that it results in greater tax savings compared to taking the standard deduction.
