Unlike standard deductions, itemizing is a manual process that requires gathering documentation and tallying expenses. Depending on how good your records are and the amount of your deductions, this time-consuming process might not reduce your taxable income enough to make it worth the effort.
Itemized deductions
The benefit of itemizing is that it allows you to claim a larger deduction that the standard deduction. However, it requires you to complete and file a Schedule A with your tax return and to maintain records of all your expenses.
Advantages of itemized deductions
Itemized deductions might add up to more than the standard deduction. The more you can deduct, the less you'll pay in taxes, which is why some people itemize — the total of their itemized deductions is more than the standard deduction.
The Tax Cut and Jobs Act eliminated the personal exemption for tax years 2018 through 2025. So, as an example, if you're a single filer with $10,000 worth of deductions, itemizing on your 2022 taxes won't save you anything because the personal exemption is no longer available and the standard deduction is higher.
Itemized deductions help some taxpayers lower their annual income tax bill more than the standard deduction would provide.
You can claim part of your total job expenses and certain miscellaneous expenses. These expenses must be more than 2% of your adjusted gross income (AGI).
If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund. You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year.
You should itemize deductions on Schedule A (Form 1040), Itemized Deductions if the total amount of your allowable itemized deductions is greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction.
If you itemize, you can deduct a part of your medical and dental expenses, and amounts you paid for certain taxes, interest, contributions, and other expenses. You can also deduct certain casualty and theft losses.
Remember, deductions are subtracted from your taxable income. In this example, itemizing deductions reduced your taxable income by $1,000. If you're in the 22% tax bracket, that's a tax savings of $220. For every dollar you deduct from your taxable income, you lower your tax bill by 22 cents.
If you are 65 or older and blind, the extra standard deduction is: $3,700 if you are single or filing as head of household. $3,000 per qualifying individual if you are married, filing jointly or separately.
If you make a claim and don't have a receipt, a bank statement, invoice, or bill may also work as a record. Some items that may fall into this category include vehicle expenses, retirement plan contributions, health insurance premiums, and cell phone expenses.
The 2023 standard deduction is $13,850 for single filers and those married filing separately, $27,700 for those married filing jointly, and $20,800 for heads of household. It is claimed on tax returns filed by April 2024.
To reap the benefits of deductions without the hassle of itemization, Backman notes you'll need line items that fall into these categories — contributions to your IRA, contributions to your HSA (health savings account), expenses you incur as a teacher like purchasing classroom supplies, and interest on student loans.
In some situations, itemizing makes more sense. Here are some common situations: You have itemized deductions totaling more than the standard deduction you would receive. You incurred significant out-of-pocket unreimbursed medical and dental expenses within the tax year.
As a single taxpayer, your standard deduction for 2023 is $13,850. Common itemized deductions that might take you over the $13,850 threshold include: Mortgage interest: You can deduct interest on a mortgage of up to $750,000 if you itemize your deductions.
How much is the standard deduction for 2023? Note: If you are at least 65 years old or blind, you can claim an additional 2023 standard deduction of $1,850 (also $1,850 if using the single or head of household filing status). If you're both 65 and blind, the additional deduction amount is doubled.
Itemizing tax deductions and claiming lesser-known credits are among the ways to boost your refund. Tax deductible contributions can be made to traditional IRAs and health savings accounts up until tax day. Asking a new accountant to review your return may uncover additional tax-savings options.
If you've incurred more than $12,950 in eligible deductions as an individual, itemizing your deductions instead will result in a lower taxable income. According to the IRS' website, you should consider itemizing your deductions if you: Can't use the standard deduction, or the amount you can claim is limited.
A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.
The mortgage interest deduction allows you to reduce your taxable income by the amount of money you've paid in mortgage interest during the year. So if you have a mortgage, keep good records — the interest you're paying on your home loan could help cut your tax bill.
A closer look at the three largest deductions—state and local taxes, home mortgage interest, and charitable contributions—helps explain why (figure 4.1). State and local taxes: Nearly all itemizers deduct state and local taxes.
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.
Itemized deductions lower your taxable income, which usually means they allow you to pay less taxes. But that depends on your tax bracket.