Itemized Deduction
IntermediateAn itemized deduction is a specific allowable expense, such as certain mortgage interest, state and local taxes, medical costs or charitable gifts, that a taxpayer lists individually to reduce taxable income. The term is used mainly in the United States.
In the US federal tax system, taxpayers can reduce their taxable income in one of two ways. They can take the standard deduction, a fixed amount based on filing status, or they can itemize, adding up their eligible expenses and deducting the total. They choose whichever is larger.
For example, if a taxpayer's standard deduction would be 14,000 but their eligible itemized expenses add up to 16,500, itemizing reduces their taxable income by an extra 2,500.
Itemizing requires records, such as receipts and statements, and many items have their own limits or conditions. Because the standard deduction is fairly large, most US taxpayers do not itemize. Itemizing is more common among people with large mortgage interest payments, high state and local taxes or significant charitable giving.
Many other countries do not use this choice. Instead, they offer a personal allowance and a separate list of reliefs that can be claimed in addition to it.
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