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Itemized Deductions: What Is An Itemized Deduction?

An itemized deduction is an expense that can be subtracted from adjusted gross income to reduce taxable income and taxes owed. Itemized deductions include mortgage interest, charitable donations, and medical expenses and must be listed on Schedule A of Form 1040. For example, a single filer with $80,000 income and $15,000 in itemized deductions would see their taxable income reduced to $65,000, saving $3,300 in taxes owed at a 22% tax rate. Itemized deductions differ from tax credits which directly reduce the tax bill.

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53 views1 page

Itemized Deductions: What Is An Itemized Deduction?

An itemized deduction is an expense that can be subtracted from adjusted gross income to reduce taxable income and taxes owed. Itemized deductions include mortgage interest, charitable donations, and medical expenses and must be listed on Schedule A of Form 1040. For example, a single filer with $80,000 income and $15,000 in itemized deductions would see their taxable income reduced to $65,000, saving $3,300 in taxes owed at a 22% tax rate. Itemized deductions differ from tax credits which directly reduce the tax bill.

Uploaded by

LJBernardo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Itemized Deductions

The taxpayer adds up all the actual amounts of allowed deductions


and claims the total in deductions from gross income.

In other words, the actual amount of allowed deductions is called


itemized deductions.

Itemized deductions usually include mortgage interests, contributions


to IRAs, property related taxes etc.

What Is an Itemized Deduction?


An itemized deduction is an expense that can be subtracted from adjusted gross
income (AGI) to reduce your taxable income and therefore reduce the amount of
taxes you owe.

Such deductions permit taxpayers who qualify to pay less in taxes than if they
had opted to take the standard deduction, a fixed dollar amount that varies only
by filing status. Allowable itemized deductions, sometimes subject to limits,
include mortgage interest, charitable gifts, and unreimbursed medical expenses.

For example, consider a person filing single, unmarried, who has a gross
income of $80,000 and is claiming itemized deductions totaling $15,000.
Subtracting those deductions from gross income yields a taxable income of
$65,000. The actual tax relief in this instance is the deducted amount, $15,000,
times the tax rate for a single person in that income bracket, which is 22% in tax
years 2020 and 2021.1 2  The amount of tax saved through the deductions in this
example is $3,300.

Tax deductions should not be confused with tax credits, which reduce your tax
bill directly. If you calculate your taxes due to be $14,000, for example, and you
are eligible for a $1,000 tax credit, your bill is cut by $1,000, to $13,000.3

Itemized deductions are listed on Schedule A of Form 1040. You must save all
receipts in case the IRS asks to see them if you are audited. Additional proof of
expenses could include bank statements, insurance bills, medical bills, and tax
receipts from qualified charitable organizations.

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