{"id":353977,"date":"2022-08-19T07:44:43","date_gmt":"2022-08-19T12:44:43","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/tax\/federal-taxes\/what-are-itemized-deductions.html"},"modified":"2023-10-11T09:27:30","modified_gmt":"2023-10-11T14:27:30","slug":"what-are-itemized-deductions","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/federal-taxes\/what-are-itemized-deductions.html","title":{"rendered":"What Are Itemized Deductions?"},"content":{"rendered":"\n
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What Are Itemized Deductions?<\/h1>\n
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\n By J.P. Finet, J.D.<\/a> | Legally reviewed by J.P. Finet, J.D.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

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The capital gains tax is the tax you pay on the profits from the sale of assets you have owned for at least one year. Capital gains are included in your taxable income but are generally taxed at a lower rate than regular income to encourage long-term investment in the U.S. economy.<\/p>\n\n <\/div>\n\n

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Deductions are expenses that reduce the amount of income subject to tax. Federal tax law allows most U.S. taxpayers to reduce their tax bills in one of two ways: by claiming itemized deductions based on their expenses throughout the year or by taking the standard deduction available to all taxpayers.<\/p>\n\n <\/div>\n\n

It is important to understand the difference between itemized deductions and the standard deduction because you can only claim one type of deduction for each tax year and it could significantly impact your tax bill.
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Most taxpayers claim the standard deduction<\/a>, but it still benefits many to itemize. The sections that follow will look at how deductions work, the difference between the standard deduction and itemized deductions, and when it benefits you to itemize<\/a>.<\/p>\r\n

How Tax Deductions Work<\/h2>\r\n

While the federal government imposes a tax on your income<\/a>, it does not tax everything you earn. When you prepare your federal income tax return, you can reduce your tax liability by subtracting certain amounts from your total income each year. These subtractions come in the form of adjustments and deductions.<\/p>\r\n

Adjustments operate in a manner that is similar to deductions, but they are usually taken out of your income before deductions. Most adjustments can be taken regardless of whether a taxpayer itemizes.<\/p>\r\n

Common adjustments include contributions to IRAs and other retirement plans, student loan interest, and self-employed insurance payments. Your adjusted gross income (AGI) is your income after subtracting these adjustments. Deductions are then subtracted from your AGI to determine your taxable income.<\/p>\r\n

Since they are often confused with one another, it is important to note that there is a difference between a tax deduction and a tax credit<\/a>. A deduction reduces the amount of income subject to tax. A tax credit, on the other hand, offers a dollar-for-dollar reduction in the amount of tax that the taxpayer owes \u2013 even after deductions have been factored in.<\/p>\r\n

The Standard Deduction<\/h2>\r\n

The standard deduction ensures that every individual taxpayer can keep at least some of their income from being subject to tax. The standard deduction was added to the tax code by the 2017 Tax Cuts and Jobs Act and replaced the personal exemption. If a taxpayer claims the standard deduction, they can’t claim any itemized deductions, so taxpayers need to understand that claiming the standard deduction may require them to forgo other deductions.<\/p>\r\n

The Internal Revenue Service (IRS) adjusts the standard deduction amount each year for inflation based on your filing status. For 2023, the IRS set the standard deduction at $13,850 for single filers, $27,700 for married taxpayers filing jointly, and $20,800 for heads of household. For most U.S. taxpayers, these amounts are more than the total of their itemized deductions, which is why an estimated 90% of them claim the standard deduction.<\/p>\r\n

Itemized Deductions<\/h2>\r\n

Taxpayers who itemize are entitled to claim a variety of deductions that are not available to those claiming the standard deduction. For individual taxpayers, these are claimed on Schedule A (Form 1040). Commonly claimed deductible expenses include:<\/p>\r\n