When it comes to reducing your taxable income, itemizing your deductions can really maximize your tax savings.
Key Takeaways
- If you pay mortgage interest, state and local income or sales taxes, property taxes, or have medical and dental expenses that exceed 7.5% of your adjusted gross income, your itemized deductions may exceed your Standard Deduction.
- To claim itemized deductions, you must file your income taxes using Form 1040 and list your itemized deductions on Schedule A.
- Add up your itemized deductions to make sure your itemized deductions total is greater than the Standard Deduction amount for your filing status. If it’s not, then you'll likely pay more in taxes if you itemize.
- If you’re subject to the Alternative Minimum Tax (AMT), some or all of the itemized deductions you claim may be reduced or eliminated.
Itemized deductions
When searching for ways to reduce your taxable income, itemizing your deductions can really maximize your tax savings. 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.
Types of itemized deductions
Itemized deductions include a range of expenses that are only deductible when you choose to itemize. Common expenses include:
- mortgage interest you pay on up to two homes
- your state and local income or sales taxes
- property taxes
- medical and dental expenses that exceed 7.5% of your adjusted gross income
- charitable donations
For years prior to 2018, itemized deductions also include miscellaneous deductions such as work-related travel and union dues. Beginning in 2018, these types of expenses are no longer deductible for federal tax, however some states still allow these deductions.
Itemizing requirements
In order to claim itemized deductions, you must file your income taxes using Form 1040 and list your itemized deductions on Schedule A:
- Enter your expenses on the appropriate lines of Schedule A.
- Add them up.
- Copy the total amount to the second page of your Form 1040.
- This amount is then subtracted from your income to arrive at the final taxable income number.
TurboTax Tip:
The Alternative Minimum Tax now disallows deductions for interest on home equity loans, state and local income or sales taxes.
Deciding whether to itemize
When deciding whether to itemize, keep in mind that you will be giving up the Standard Deduction amount. So, after adding up your itemized deductions, make sure your itemized deductions total is greater than the Standard Deduction amount for your filing status. If it’s not, then you'll most likely pay more in tax if you itemize.
Alternative minimum tax implications
If you are subject to the Alternative Minimum Tax (AMT), some or all of the itemized deductions you claim may be reduced or eliminated. Your medical and dental expenses deduction would be reduced, for example. The AMT disallows deductions for:
- interest on home equity loans
- state and local income or sales taxes
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FAQs
If you itemize, you can deduct these expenses:
- Bad debts.
- Canceled debt on home.
- Capital losses.
- Donations to charity.
- Gains from sale of your home.
- Gambling losses.
- Home mortgage interest.
- Income, sales, real estate and personal property taxes.
If the total is larger than your Standard Deduction, there's a good chance you would benefit from itemizing. All of the rest of your itemized deductions, including state and local taxes, medical expenses, and charitable donations, are just icing on the cake.
What is the 2 rule on itemized deductions? ›
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).
What are the majority of itemized deductions? ›
The most common itemized deductions are those for state and local taxes, mortgage interest, charitable contributions, and medical and dental expenses.
What deduction can I claim without receipts? ›
What does the IRS allow you to deduct (or “write off”) without receipts?
- Self-employment taxes. ...
- Home office expenses. ...
- Self-employed health insurance premiums. ...
- Self-employed retirement plan contributions. ...
- Vehicle expenses. ...
- Cell phone expenses.
If you choose the standard deduction, you will not be able to claim itemized deductions. These cover many key areas, such as medical costs, charitable donations, state taxes, and various expenses related to owning a home. However, most people take the standard deduction.
What are three itemized deductions you could claim now or in the future? ›
Types of itemized deductions
your state and local income or sales taxes. property taxes. medical and dental expenses that exceed 7.5% of your adjusted gross income. charitable donations.
What qualifies as a medical expense for tax purposes? ›
Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care.
How to calculate itemized deductions? ›
The itemized deduction amount is determined by adding all applicable deductions and subtracting the sum from your taxable income. Common itemized deductions include: Casualty and theft losses from a federally declared disaster. Charitable donations.
What is one disadvantage of itemizing your deductions? ›
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.
It typically only makes sense to itemize if the total of your itemized deductions exceeds the standard deduction. This generally means you'll owe less federal income tax, which can increase your tax refund.
How do I get the most out of itemized deductions? ›
7 Tips to Maximize Deductions and Credits in 2023
- Make 401(k) and HSA Contributions.
- Make Charitable Donations.
- Postpone Your Income.
- Pay for Your Business Expenses Early.
- Consider Your Losing Investments.
- Don't Forget About Office Expenses.
- Consult a Tax Professional.
If the value of expenses that you can deduct is more than the standard deduction (as noted above, for the tax year 2023 these are: $13,850 for single and married filing separately, $27,700 for married filing jointly, and $20,800 for heads of households) then you should consider itemizing.
Is it worth itemizing 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.
Which of the following taxes will not qualify as an itemized deduction? ›
Answer and Explanation: The gasoline taxes paid on personal travel cannot be itemized.
Is it worth it to itemize deductions? ›
If your expenses throughout the year were more than the value of the standard deduction, itemizing is a useful strategy to maximize your tax benefits. Keep in mind that not all expenses qualify when you itemize. Itemized deductions include products, services, or contributions that have been approved by the IRS.
How to get $10 000 tax refund? ›
How do I get a 10,000 tax refund? You could end up with a $10,000 tax refund if you've paid significantly more tax payments than you owe at the end of the year.
