What does it mean to itemize deductions, and when or why would I do this?

Itemizing deductions means listing specific expenses on Schedule A of your tax return to reduce your taxable income. These deductions can then lower your tax bill.

Here's how itemized deductions work:

1. You list all your eligible expenses on Schedule A, grouped into categories like medical expenses, charitable contributions, mortgage interest, and state and local taxes.
2. You total your itemized deductions.
3. You compare your total itemized deductions to the standard deduction for your filing status.
4. You claim the higher amount on your tax return.

When to itemize:

• You should itemize your deductions if your total itemized deductions are greater than the standard deduction for your filing status.
• For most taxpayers, the standard deduction is high enough that itemizing is no longer beneficial.
• However, you may still want to itemize if you have significant expenses in certain categories, such as:
  • Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI).
  • Mortgage interest on your primary and second home, up to a limit.
  • State and local income or sales taxes (you can only claim one or the other).
  • Charitable contributions to qualified organizations.
  • Other eligible expenses, such as gambling losses, casualty and theft losses, and qualified educator expenses.