Let’s take a look at some of the most common itemized deductions, whether you’re eligible to deduct them, and if it would save you money come tax time.
Standard Deduction vs. Itemizing
If you’ve ever done your taxes, you’re likely aware that all taxpayers (companies and individuals) are allowed to deduct certain expenses from their tax bill each year. The purpose of this is to lower everyone’s overall tax burden and ensure that at least some of each taxpayer’s earnings are not subject to federal income tax.
For simplicity’s sake, and to level the playing field, the IRS has instituted a flat (or standard) deduction that anyone can take. The standard deduction dollar amount is based on your filing status: single, head of household, married filing jointly, or married filing separately.
For the 2021 tax year, this amount ranges from $12,550 to $25,100. There is an additional provision of between $1,350 and $1,700 for those over 65 or legally blind.
|Filing Status||Tax Year 2021||Tax Year 2022|
|Married, Filing Jointly||$25,100||$25,900|
|Married, Filing Separately||$12,500||$12,950|
|Head of Household||$18,800||$19,400|
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There are a few instances when you wouldn’t be able to take the standard deduction:
- If you file married filing separately, and your spouse itemizes deductions on his or her return
- If you’re filing jointly and you (or your spouse) were a nonresident alien at any point in the tax year
- If you alter your accounting period and end up filing a return that covers a period shorter than 12 months
So, what exactly does it mean to itemize your deductions?
As the name suggests, deciding on itemized deductions means that you choose to calculate, one-by-one, all the tax-deductible expenses on your tax return, rather than opting for the flat deduction.
This is beneficial if your eligible deductions add up to more than the standard deduction. You want to pick whichever one results in a higher number so you get a bigger tax break in the end.
Recent Tax Changes
Beginning with the 2018 tax year, the IRS made some serious changes that affected pretty much every tax filer in the United States.
This recent tax reform included an overhaul of many things but for many filers, the most impactful was the increase in the standard deduction.
For the tax year 2017, the standard deduction for a single filer was a mere $6,350. For the tax year 2018, this nearly doubled to $12,000. All other filing categories saw a huge bump in the standard deduction as well, much to the surprise (and joy) of filers everywhere.
However, this boost created some new questions, mostly when it comes to itemizing versus taking the standard deduction.
Does It Still Make Sense to Itemize?
The IRS hasn’t yet published the final tax filing numbers from last April, which covered the tax year 2020. According to the IRS’s statistics for 2019, only 11.4% of taxpayers itemized deductions.
Itemizing only makes sense if you stand to deduct more from your taxes than you would by taking the standard deduction. Yes, the itemized deduction route is more work (another reason many taxpayers will automatically opt for that route) but you should consider itemizing if any of the following apply to you in the last tax year:
- Can’t claim use the standard deduction or the amount you can claim is limited
- You made large charitable donations.
- You own a home and paid home mortgage interest.
- You have expenses related to investment income.
- You (or your dependents) have medical expenses beyond the occasional doctor’s visit.
- You paid property, state, or local income taxes.
- You have miscellaneous deductions to include.
Itemizing your deductible expenses is definitely more of a hassle than taking the standard deduction. It’s well worth it, though, if it will reduce your tax burden.
If you think there’s a chance that your deductible expenses are greater than your personal standard deduction amount, take time to run the numbers. Many online tax preparation companies will even help you with this and suggest whether you should itemize or not.
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Common Itemized Deductions
1. Charitable Donations
Were you generous last tax year? Did you tithe to your church, contribute to a worthy cause, or donate your gently used household items to those in need? If so, you can probably claim these gifts as itemized deductions.
There are a few limitations to charitable deductions. First and foremost, you must donate to a qualified organization. Political campaigns don’t count, and you’ll need to get a receipt to support your contribution claim.
There are also dollar amount limits. For cash donations, you can only claim a deduction of up to 50% of your AGI. For certain private foundations, veterans organizations, nonprofit cemeteries, and fraternal societies, this limit is even lower at 30%. You’re also limited to a 30% AGI deduction for personal property donations.
In order to donate property (such as household goods, clothing, etc.), it needs to be in good, usable condition. You also have to determine the fair market value—you can’t just claim the new value for non-cash donations. If you need help determining the value of the donated items, check out this guide.
2. Home Mortgage Interest
If you have a home (or two), you’re eligible to deduct the interest paid on that mortgage as an itemized deduction. Depending on where you are on your mortgage term, this is likely a substantial amount, too.
The mortgage interest deduction is allowed on the first $750,000 of the mortgage. Each taxpayer is allowed to deduct interest paid on as many as two residences, as well.
While you used to be able to deduct the interest paid on a home equity loan, this is no longer the case.
3. Investment Expenses
Investing often brings with it a slew of expenses, including legal and professional fees, financial advice, and more. The Tax Cuts and Jobs Act eliminated most investment expenses in 2017 through at least 2025, but you can still deduct investment interest expenses. Investment interest expense refers to the amount of interest you paid on money you borrowed to purchase investments. You can include margin loans in this deduction.
You can no longer deduct fees paid to investment advisors, IRA custodial expenses, safe deposit boxes used to store stocks or bonds, or office expenses.
You can deduct your investment expenses on Schedule A as long as they don’t exceed your investment income for the year. Essentially, you can’t report a loss on your itemized deductions based on investment expenses alone. (Claiming a capital loss on the investment value itself is a different matter, though.)
*instead, expenses on both of these are added to the cost of the property
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4. Medical Expenses
These are a bit trickier, from a tax-deductible standpoint, but you can claim medical expenses on your itemized deduction.
The caveat is that you can only claim that which exceeds 7.5% of your AGI. This means that if you make $60,000 a year, and you have $6,000 in medical expenses, you would multiply $60,000 by 0.075 to discover that only medical expenses over $4,500 can be deducted. Still, $1,500 is a decent deduction.
If you reach your 7.5% AGI limit, there is a long range of expenses that you can deduct. These include:
- Co-pays and doctors fees, even if you saw a chiropractor or non-traditional provider
- Insurance premiums
- Medically-necessary surgery costs (no, cosmetic surgery doesn’t count, unless it was reconstructive)
- Expenses related to attending a medical conference for a chronic condition that you, your spouse, or a dependent have (limited to transportation and admission)
- Contact lenses, glasses, or hearing aids
- Crutches, wheelchairs, guide dogs, or other accessibility expenses
- Dental work
- Weight loss programs for those with diagnosed obesity (but special food isn’t necessarily included)
- Alcohol, drug addiction, and nicotine cessation treatment
- Transportation involved with receiving medical care (fares, tolls, parking, and gas/oil)
5. Local, State, and Property Taxes
If you live in a state with its own income taxes, you’ll likely benefit from itemizing. Local (city) or state taxes incurred during the year are deductible on the Schedule A.
You can also deduct any real estate taxes that you paid on your home, as well as personal property taxes that you paid on belongings like your vehicle (a lovely, added expense we have here in Virginia).
You cannot deduct federal income tax, estate taxes, Social Security taxes, homeowners association fees, or transfer taxes from the sale of a home, among others.
6. Miscellaneous Expenses
There are a few tax-deductible expenses that don’t fall into any of the above categories, but you can still claim them when you itemize your deductions. They are limited to expenses above 2% of your AGI. Using the example above, where you make $60,000 a year, this means that you would only be able to deduct expenses above $1,200.
The Tax Cuts and Job Act eliminated most miscellaneous expenses. Unreimbursed employee expenses can only be deducted by the following:
- Armed forces reservists
- Qualified performing artists
- Fee-basis state or local government officials
- Employees with impairment-related work expenses
Eligible educators can claim unreimbursed expenses as an adjustment to their gross income on Schedule 1, Form 1040, rather than as a miscellaneous deduction. See the instructions on Form 1040 and Form 1040 SR for details.
Depending on how much you make each year and which additional expenses you incur, itemizing your deductions (rather than taking the standard deduction) might be a wise idea. It’s important to do the math (most tax-preparation software can analyze this for you) and see which is the most financially-beneficial option.
As with everything tax-related, you’ll need to keep diligent records and save receipts for everything that you believe to be a deductible expense.
Consult a Tax Pro
The editorial team at Dough Roller knows a thing or two about taxes. Some have taken the standard deduction, others have itemized. We’ve prepared our taxes with software like TurboTax and we’ve also hired pros.
But we are not tax experts. We’ve done our best to get the above information right and offer clear guidance, but please consult a tax professional before making any decisions.