Should You Itemize Your Deductions?Published:
Tax Tips for Claiming Itemizing Deductions vs. the Standard Deduction
When you are filing your 1040 tax return, right before you compute your final taxable income, you have the option to either claim the standard deduction (which is based on your filing status) or to itemize deductions on Schedule A.
If you choose to itemize deductions then you will need to file Schedule A (Itemized Deductions) along with your Form 1040.
Itemized deductions can include the following items:
- Medical Expenses
- State taxes like income or sales taxes (you can deduct one but not both)
- Real estate expenses like interest, mortgage insurance, and property taxes
- Gifts to charity
- Losses due to theft or other casualty
- Miscellaneous Deductions
For determining what items you can deduct in each category, please refer to the Instructions for Schedule A (Form 1040).
Usually, you will only want to itemize your deductions if their total will exceed the standard deduction for your filing status. This means you should figure out what your itemized deductions are worth before you decide whether to itemize or not.
For 2021, the standard deduction amounts are as follows:
- Single: $12,550
- Head of Household: $18,800
- Married Filing Jointly: $25,100
- Married Filing Separately: $12,550
If you want to get a quick estimate to see whether you should itemize your deductions, consider this: The two most popular itemized deductions are for real estate expenses and state income taxes. Look at your property taxes and the interest you paid on your mortgage, and add that to the state income tax you had withheld. (All of these numbers are reported either by your mortgage company or on your W-2s.) Then compute all of your itemized deductions and see if they exceed the standard deduction amount. The good news is that unless your situation changes dramatically, this estimate usually stays the same from year to year.
In some cases, though, you may have circumstances that make it beneficial to itemize deductions. Did you have extra medical expenses this year? Or did you make a large donation to charity? In these instances, you should compute your itemized deductions to see if they exceed the standard deduction that year.
There may be times when itemizing deductions looks advantageous, but you should still take the standard deduction. The most common case of this is when state income tax withheld makes up a large part of your itemized deductions, and the total is just slightly over the standard deduction threshold. In order to avoid having to report your large state tax refund as income on your federal tax return (Form 1040 or Form 1040-SR), you may want to claim the standard deduction. It’s recommended that you consult a tax professional before making this decision.
There are also cases where you may want to itemize your deductions even though the standard deduction is higher. This can occur in instances when your state income tax return affects your federal return. For example, if your state has a low standard deduction but allows you to use the itemized deductions from your federal return, it may be beneficial to accept a smaller deduction on your federal return in exchange for a larger deduction on your state return. These situations are rare, but they do happen.
Note that in certain situations, you aren’t allowed to claim the standard deduction at all. For example, if your filing status is “married filing separately” and your spouse itemizes their deductions, then you are required to itemize your deductions as well.
Many tax preparation software programs will help you calculate your deductions to see if itemizing is your best move. If you are unsure whether your situation qualifies for an itemized deduction, you should consult a tax professional.
For more information, please see IRS Publication 17 (Your Federal Income Tax).
RELATED: Top 5 Tax Deductions for Individuals