What are itemized deductions?

Itemized deductions refer to specific personal expenditures that taxpayers can deduct from their adjusted gross income (AGI) to reduce their taxable income. These deductions are detailed on Schedule A of Form 1040 and may include expenses such as mortgage interest, property taxes, state and local taxes, medical expenses exceeding a certain percentage of AGI, charitable contributions, and certain unreimbursed business expenses for employees.

Choosing to itemize deductions is generally beneficial when the total of these deductions exceeds the standard deduction available based on filing status. Taxpayers must decide annually whether to take the standard deduction or to itemize, and the itemized deductions must be well-documented, as they might be subject to scrutiny by tax authorities.

Understanding itemized deductions is crucial for effective tax planning and maximizing potential tax savings by ensuring that all eligible expenditures are recognized and utilized appropriately.