If you or a friend are wondering, "What does it mean to itemize deductions?" you're not alone. Write-offs can be tricky.
The U.S. government gives taxpayers a standard deduction each year, which allows them to reduce the amount of income tax they pay. If taxpayers feel they have more qualifying deductible expenses than the standard deduction amount, they can submit those expenses instead. This is known as itemizing deductions.
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To itemize, you'll first need to know if you qualify. Next, you'll need to know which of your expenses qualify. Working with a tax professional, you should be able to quickly determine if you should itemize or take the standard deduction and submit your choice correctly.
The Standard Deduction
Most people take the standard deduction on their annual income taxes because that deduction amount is greater than the amount of itemized (or individual) deductions they can claim.
The standard deduction for a single person or married individual filing separately in 2021 is $12,550, while married couples filing jointly get a $25,100 standard deduction. A head of household can claim a standard deduction of $18,800. Other deductions benefit people over 65 and those who are blind, so check with a tax professional to get the maximum for which you qualify.
What Is Itemizing?
You might have enough personal deductions that they add up to more than the standard deduction. If you decide to claim (itemize) individual deductions, rather than take the standard deduction, you list them on your tax return. To see what individual (non-business) deductions you can itemize, review Schedule A (which is the form you use to list your deductions) for examples. You can itemize expenses like:
- Unreimbursed medical and dental expenses
- Long-term care premiums
- Casualty and theft losses
- Charitable donations
- Taxes paid
- Home mortgage and home equity loan (or line of credit) interest
- Miscellaneous deductions
The amounts and percentages change each year. For example, in 2021, you can deduct unreimbursed medical and dental expenses that exceed 7.5 percent of your adjusted gross income. Make sure you are current with each year's deduction limits.
Personal vs. Business Deductions
In addition to itemizing personal deductions, you might be able to write off some business expenses. This is not itemizing, but is still a method of deducting expenses you have and lowering your tax liability.
With the passage of the Tax Cut and Jobs Act, which went into effect in 2018, employees could no longer claim business-related deductions for expenses not reimbursed by their employers. This means that only contractors, the self-employed, small-business owners, gig workers and others who are not employees of a business can claim business-related deductions.
If you have a small business, side hustle or do contract work, talk to a tax professional to see if you can deduct business-related expenses. This can include mileage, a home office, equipment, business travel, meals, insurance, internet, phone, your website and other costs. Beware of the many myths surrounding business write-offs – you can get into trouble improperly claiming meals, mileage, vacations and a home office that don't meet the IRS criteria for business deductions. Refer to IRS Form Schedule C for more details.