Tax deductions enable taxpayers to reduce their total taxable income. That can be a very good thing: It can result in a lower tax bill or, if you had too much withheld through the year, a larger refund.
While most people now take the standard deduction — especially since the Tax Cuts and Jobs Act of 2017 effectively doubled the standard deduction amount — some taxpayers may benefit from itemizing their deductions.
Doing so can be a somewhat complicated and time-consuming process, but it may save you money. Here’s your guide to itemizing deductions; read on to learn:
• What is an itemized deduction?
• How do itemized deductions differ from standard deductions?
• What are examples of itemized deductions?
• What are the pros and cons of itemizing deductions?
What Is an Itemized Deduction?
Itemized deductions are a strategy to lower your adjusted gross income for a tax year. Rather than taking a set standard deduction whose amount is determined by the Internal Revenue Service (IRS), some taxpayers choose to calculate all deductions for which they’re eligible. They can then decrease their taxable income by that amount.
It’s worthwhile for some taxpayers to do the math and see how much they can reduce their tax bill by itemizing. That said, many may realize they can actually reduce their taxable income more by taking the standard deduction. Why? The standard deduction is much larger than it used to be since the passing of the Tax Cuts and Jobs Act at the end of 2017.
For the 2023 tax year (filing in 2024), the standard deduction is:
• $13,850 for single tax filers
• $20,800 for heads of household
• $27,700 for married couples filing jointly
Almost everyone can take the standard deduction — and there’s a lot less math and paperwork involved. But for a unique set of taxpayers, itemized deductions could yield an even larger tax liability reduction than what the IRS offers through the standard deduction.
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Itemized vs. Standard Deduction: What’s the Difference?
So what are the differences between itemized deductions and the standard deduction? Let’s take a look.
• Dollar amount: The standard deduction is a set amount. If you choose the standard deduction, you cannot reduce your tax liability further by tacking on itemized deductions. When itemizing, the amount by which you reduce your tax burden varies depending on your unique tax situation. In nearly every case, it only makes sense to itemize if the resulting deduction is larger than the standard deduction or if you aren’t eligible to take the standard deduction.
• Process: Claiming the standard deduction is straightforward. You don’t need to produce receipts and sort through expenses. If you itemize, you’ll need to educate yourself about all the deductions for which you qualify, produce the proof that you qualify in case of a tax audit, and fill out what is known as Schedule A on your tax return.
• Eligibility: Anyone can itemize their deductions, but the standard deduction has a few exceptions. For example, if you’re married but filing separately and your spouse itemizes, you must itemize as well. While almost everyone is eligible to take the standard deduction, it never hurts to check with the IRS or your accountant to ensure eligibility.
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How Do Itemized Deductions Work?
Now that you know what itemized deductions vs. standard ones are, consider a more specific example of how they work.
Itemized deductions reduce your overall tax liability, just like the standard deduction. The catch? You can only take the itemized deductions for which you’re eligible. If you can cobble together enough itemized deductions to equal a larger tax-liability reduction than the standard amount, it could be worth itemizing.
As an example, let’s assume your gross income was $100,000.
• The standard deduction for this income is $13,850 for single filers, so your taxable income would be $86,150.
• Let’s suppose your itemized deductions are worth $20,000. It will lower your taxable income to $80,000.
Because your itemized deductions are greater than the standard deduction, it makes sense to itemize. Doing so will lower your taxable income and can thereby reduce the taxes you pay.
While it may take longer to calculate your deductions and prepare your tax return, it may make good financial sense to keep that extra cash in your pocket (or savings account, as the case may be).
Types of Itemized Deductions
The IRS offers an extensive list of potential itemized tax deductions, but you’ll probably only qualify for a handful. Here are a few of the most common:
• Property tax deduction
• Charitable contribution deduction
• Deduction of state and local sales taxes
• Deduction of certain medical and dental expenses
While the IRS used to have a long list of miscellaneous deductions — from moving expenses to unreimbursed job expenses to tax preparation fees — many of these disappeared with the Tax Cuts and Jobs Act.
Independent contractors may want to consider itemizing; check out the tax deductions for freelancers to see which ones you may qualify for. As you itemize your business expenses, pay attention to the home office tax deduction, as well as how much you spend on office supplies, travel, and other business-related expenses. Make sure to keep good documentation of what you’ve paid.
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How to Claim an Itemized Deduction
To claim itemized tax deductions on your return, you’ll need to fill out IRS Schedule A with your Form 1040. Here’s what that process looks like:
1. Research itemized deductions. It’s helpful to know which deductions you qualify for — and to gather up necessary documentation to enter in all the information beforehand. Preparing for tax season can make the process go much more smoothly!
2. Fill out Schedule A. You’ll enter in all your expenses and add them up to get your total deduction.
3. Compare it to the standard deduction. Before copying that total over to your Form 1040, it’s wise to reference the standard deduction for your filing status this year. Once you’re sure that the itemized deduction can yield larger savings, you can write down the number on Form 1040 and continue filing your taxes.
While the process sounds straightforward, it can be difficult to find out which deductions you’re eligible for and how to tabulate all your expenses. If you’re unsure, it may be a good idea to work with an accountant or at least professional tax preparation software.
Recommended: How to File Taxes for the First Time
Pros and Cons of Itemized Deductions
So what are the benefits and drawbacks of itemizing your deductions? Let’s take a look.
Pro: Itemizing could help lower your taxable income and save you more money than the standard deduction.
Con: Given changes to tax law a few years back, there’s a good chance you may save more with the standard deduction.
Pro: Because you’re writing off certain expenses and know which expenses are deductible, you may be more prudent with your spending habits throughout the year.
Con: Itemizing can involve a lot more paperwork and effort. It can be confusing, and you must make sure you’re only itemizing deductions for which you actually qualify to avoid trouble with the IRS.
The Takeaway
Most people will likely save more money on their taxes with the standard deduction, but depending on your scenario, you could see a greater reduction in your tax liability by itemizing. If you have the time, it may be worth it to go through the process of itemizing, just to see if you could save money. If you can, great! And if not, the standard deduction also offers great savings.
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FAQ
Can anyone itemize a deduction?
All taxpayers are permitted to itemize deductions, but the Tax Cuts and Jobs Act has made it less attractive to itemize for many Americans. Why? The standard deduction essentially doubled in size, while fewer expenses became eligible for itemizing.
Still, it may be worth calculating your itemized deductions to see if you can save more than you would with the standard deduction.
What are some things that you cannot itemize?
Since the Tax Cuts and Jobs Act, there are fewer things that you can itemize on your tax return. Even some popular deductions that people used to take are no longer eligible, including moving expenses, tax preparation fees, and unreimbursed business expenses.
Many deductions have a lot of fine print — both for inclusion and exclusion — so it’s a good idea to work with an accountant or professional tax preparation software to determine what counts as an itemized deduction.
Do you need proof for itemized deductions?
Generally, you should have proof for expenses that you are claiming as an itemized deduction. Such documentation would prove that you paid the expenses and that they were eligible for the deduction. The IRS calls this the burden of proof.
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