In the United States, itemized deductions are a way for taxpayers to lower their taxable income by deducting certain expenses from their taxable income. To benefit from itemized deductions, taxpayers must itemize their deductions on their tax return instead of taking the standard deduction.
To itemize deductions, taxpayers must have a certain level of qualified expenses that exceed the standard deduction amount. The standard deduction amount varies based on the taxpayer's filing status and can change each year. For example, in 2023, the standard deduction for single filers is US$ 13,850, while for married couples filing jointly it's US$ 27,700.
Some of the most common expenses that can be itemized include:
- State and local taxes, such as income taxes and property taxes.
- Mortgage interest on a primary residence.
- Charitable donations to qualified organizations.
- Certain medical and dental expenses that exceed 7.5% of the taxpayer's adjusted gross income.
- Certain miscellaneous expenses such as job search expenses, tax preparation fees, and investment fees.
Taxpayers should keep records and receipts of these expenses to claim itemized deductions on their tax returns.
It's important to note that, under the Tax Cuts and Jobs Act of 2017, the itemized deductions for state and local taxes are capped at $10,000 and some miscellaneous deductions are no longer allowed. Furthermore, the act also increased the standard deduction and expanded the child tax credit, which could make it less beneficial for some taxpayers to itemize their deductions.
In summary, to benefit from itemized deductions in the United States, taxpayers must have a certain level of qualified expenses that exceed the standard deduction amount. Taxpayers can itemize their deductions on their tax return for expenses such as state and local taxes, mortgage interest, charitable donations, medical and dental expenses, and certain miscellaneous expenses. It's important to keep records and receipts of these expenses to claim itemized deductions on their tax returns and to be aware of the changes brought by the Tax Cuts and Jobs Act of 2017.
For further information, read this article