Itemized Deductions

What are itemized deductions

Itemized deductions are specific eligible expenses a taxpayer lists on Schedule A of Form 1040 to reduce taxable income, instead of taking the standard deduction. Each expense must be documented and fall within IRS rules.

Key characteristics of itemized deductions:

• Common categories include mortgage interest, state and local taxes (subject to a cap), charitable contributions, and qualifying medical expenses

• Only worthwhile when the total exceeds the standard deduction

• Require receipts and records in case of an IRS review

• Separate from business expenses, which are deducted on the business return

Itemized deductions vs. the standard deduction

The two are mutually exclusive. Compare the total of your itemized expenses with the standard deduction for your filing status and use the larger figure. Itemized deductions can also affect calculations such as the alternative minimum tax on Form 6251.

Why it matters for service firms

Owners with significant charitable giving or property and state taxes may benefit from itemizing. Good year-round record keeping makes the decision easy at filing time. Review your situation with your CPA.