Itemized Deductions

What does Itemized Deductions mean?

An itemized deduction is a dollar amount that taxpayers can use to reduce the amount of their adjusted gross income and thereby their taxable income when they do not elect to use the standard deduction.

The Internal Revenue Service defines what types of expenses are available as itemized deductions. Itemized deductions include medical and dental expenses, certain taxes, home mortgage points and interest, charitable contributions, certain educational expenses, unreimbursed business expenses, and losses from disasters or theft.

Some itemized deductions are fully deductible from adjusted gross income, such as mortgage interest and points. Other itemized deductions are only deductible once they exceed a certain threshold, such as medical and dental expenses that are deductible once they exceed 7.5 percent of the taxpayer's adjusted gross income.

Unlike with the standard deduction, taxpayers generally have to provide evidence to support the use of each itemized deduction, depending on the type and amount of the itemized deduction.

A taxpayer cannot use both the standard deduction and itemized deductions in the same tax year. However, a taxpayer can choose the type of deduction that gives the taxpayer the lowest tax liability. Most taxpayers use the standard deduction on their income tax returns, because it is easier to calculate and because they do not have enough itemized deductions to exceed the standard deduction.

(Tags - IRS - Debt - Tax Credits )

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