Understanding Itemized Deductions: A Guide to Maximizing Your Tax Savings
- Priscilla Wolfe
- Jun 25, 2024
- 8 min read
Updated: Jul 21
As tax season approaches, many taxpayers face the perennial dilemma: should they take the standard deduction or itemize their deductions? While the standard deduction is straightforward and easy to claim, itemizing your deductions can potentially lower your tax bill more significantly. Schedule a meeting with your tax advisor to review potential tax deductions.
What Are Itemized Deductions?
Itemized Deductions: A Guide to Maximizing Tax Savings
Itemized deductions are specific expenses that the IRS allows you to deduct from your taxable income, reducing the overall amount of income that is subject to taxation. Unlike the standard deduction, which is a fixed amount based on your filing status, itemized deductions can vary widely depending on your personal circumstances and eligible expenses. Publication 525 (2024), Taxable and Nontaxable Income
itemized Deductions: A Guide to Maximizing Tax Savings
Standard Deductions:
Single or Married Filing Separately: $14,600
Married Filing Jointly & Surviving Spouses: $29,200
Head of Household: $21,900
Standard Deductions:
Single or Married Filing Separately: $15,000
Married Filing Jointly & Surviving Spouses: $30,000
Head of Household: $22,500
How to Decide Whether to Itemize
If your total itemized deductions exceed the standard deduction for your filing status, you should consider itemizing to lower your taxable income.
IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service
Federal income tax rates and brackets | Internal Revenue Service
About Publication 15-T, Federal Income Tax Withholding Methods | Internal Revenue Service
Publication 15-B (2025), Employer's Tax Guide to Fringe Benefits
Common Itemized Deductions
Medical and Dental Expenses: If you had significant medical expenses that were not covered by insurance, these can quickly add up and surpass the standard deduction threshold.
Qualified Long-Term Care Insurance Contracts
Health Savings Account (HSA) Deduction Publication 969 (2023), Health Savings Accounts and Other Tax-Favored Health Plans | Internal Revenue Service
High SALT and Mortgage Interest:
Homeowners in high-tax states often find that their property taxes and mortgage interest alone make itemizing more advantageous.
High SALT (State and Local Tax) and Mortgage Interest
The TCJA limited the SALT deduction to $10,000
Mortgage interest rates have jumped and are capped out at $750K
SALT allows those in high-tax states to deduct the money they spend on local and state taxes
Tax Cuts and Jobs Act: A comparison for businesses | Internal Revenue Service
Substantial Charitable Contribution Deductions:
Substantiating charitable contributions | Internal Revenue Service
Charitable contribution deductions | Internal Revenue Service
Gambling income and losses
Standard Mileage Deduction
Pass-Through Business Deduction: IRS Section 199A Deduction
Qualified Business Income Deduction | Internal Revenue Service
Retirement Savings Contribution Credit
Retirement Savings Contributions Credit (Saver’s Credit) | Internal Revenue Service
Penalty for Early Savings Withdrawal
Estate Tax
Estate tax | Internal Revenue Service
Publication 559 (2023), Survivors, Executors, and Administrators | Internal Revenue Service
Gift Tax
Alternative Minimum Tax:
Earned Income (EITC) and AGI Definition of adjusted gross income | Internal Revenue Service
Student loan interest deduction (American Opportunity Credit)
Topic no. 456, Student loan interest deduction | Internal Revenue Service
Child and Dependent Care Credit
Child and Dependent Care Credit information | Internal Revenue Service
Virtual Currency
The IRS announced that convertible virtual currencies, such as Bitcoin, would be treated as property (intangible assets) and not as currency, thus creating immediate tax consequences for those using Bitcoins to pay for goods and services. The exchange of virtual currency would be recorded as a gain or loss on the Income Statement. Taxpayers having transactions in virtual currencies are out of scope for the VITA/TCE programs.
Premium Tax Credit The Premium Tax Credit – The basics
(2025) rp-24-35.pdf
Clean vehicle and energy credits
Child Tax Credit
Additional Child Tax Credit (ACTC)
which is a refundable credit worth up to $1,700 per qualifying child. This means if your tax liability is less than the total CTC, you could receive the excess amount as a refund
Education credits - AOTC and LLC
Retirement plans
Intangibles
Capital Gains and Losses
Miscellaneous Deductions:
Work Opportunity Credit
Employee Retention Credit
Guide to business expense resources
Guide to business expense resources | Internal Revenue Service
The IRS allows business deductions that are "ordinary and necessary" for the industry. Ordinary expenses are common and accepted, while necessary expenses are helpful and appropriate for your trade.
Examples include advertising, employee salaries, travel costs, and office supplies. Meal expenses are usually 50% deductible unless otherwise specified.
Start Up Cost
Augusta Rule
The Augusta Rule, also known as IRS Section 280A(g), allows homeowners to rent out their home for up to 14 days per year without having to report the rental income on their tax returns.
Excess social security and tier 1 RRTA tax withheld
The self-employment tax was 15.3% and anyone who paid that full tax can then deduct half of it on their taxes. Normally, employees pay a tax of 7.65% on their income (FICA taxes) and their employers also pay that amount for a combined tax of 15.3%. Self-employed workers need to pay the whole tax but can then deduct the employer portion on their federal tax return. Use Schedule SE to calculate your self-employment tax and Schedule 1 to claim this deduction.
Low-income housing credit: Form 8586
Federal Fuel Tax Credit Form 4136
Bad debt deduction
Foreign Tax Credit
Form 2555, Foreign Earned Income
Steps to Itemize Your Deductions
Gather Documentation: Collect all relevant receipts, statements, and records for your deductible expenses throughout the year. This includes medical bills, mortgage statements, charitable contribution receipts, and tax payment records.
Consult a Tax Professional: If you have a complex financial situation or are unsure about which deductions you qualify for, it may be wise to consult a tax professional. They can help you maximize your deductions and ensure compliance with IRS regulations.
The IRS forms you use to claim deductions depend on your filing status, the type of deduction, and whether you're filing as an individual or a business.
Here are some commonly used forms for claiming deductions:
For Individuals and Sole Proprietors:
Credits and deductions for individuals IRS
Form 1040 - U.S. Individual Income Tax Return
Schedule A (attached to Form 1040) to claim itemized deductions, such as:
Medical and dental expenses
State and local taxes
Mortgage interest
Charitable contributions
If you take the standard deduction, you do not need Schedule A.
Schedule C (Form 1040) - Profit or Loss from Business
For self-employed individuals or sole proprietors to deduct business expenses, such as:
Office supplies
Business travel
Advertising costs
Schedule E (Form 1040) - Supplemental Income and Loss
For reporting income and deductions related to rental properties, royalties, partnerships, or S corporations.
Form 8889 - Health Savings Accounts (HSAs)
To claim deductions for contributions to an HSA.
Form 2441 - Child and Dependent Care Expenses
To claim the child and dependent care credit.
Form 8917 - Tuition and Fees Deduction
For educational expenses (if applicable).
Form 2106 - Employee Business Expenses
For unreimbursed employee expenses (limited to specific cases).
For Businesses:
Credits and deductions for businesses
Form 1120 (C Corporations)
Includes sections for claiming deductions specific to corporate expenses.
Form 1120-S (S Corporations)
Used by S corporations, with income and deductions passed through to shareholders.
Form 1065 (Partnerships)
Partnerships report income and deductions on this form, with details passed to partners via Schedule K-1.
Form 4562 - Depreciation and Amortization
To claim deductions for depreciation of property and amortization of intangible assets.
Form 8829 - Expenses for Business Use of Your Home
For sole proprietors to deduct home office expenses.
Other Forms
Transferor of Prop to Foreign Corp (926)
Discharge of Indebtedness (982)
Foreign Disregarded Entities (8858)
Extraterritorial Inc. Exclusion (8873)
Asset Allocation Statement (8883)
International Boycott Report (5713)
Forest Activities Schedule (Form T)
Corp Report of Non-dividend Distributions (5452)
Employer-Owned Life Ins. Contracts (8925)
Shareholder Return PFIC/QEF (8621)
Limitation on Business Interest Expense (8990)
Global Intangible Low-Taxed Income (8992)
Qualified Opportunity Fund (8996)
Qualified Opportunity Fund Investments (8997)
Business Identity Theft Affidavit (14039-B)
Shareholders' Pro Rata Share Items - Int'l. (Sch. K-2) Form 1065
Shareholder Overrides - Int'l. (Sch. K-3) Form 1065
EECB (Energy Efficient Commercial Buildings) Deduction (7205)
Miscellaneous Forms
Corp. Dissolution/Liquidation (966)
Application to Use LIFO (970)
S Corporation Election (2553)
Power of Att. (2848)
Notice of Fiduciary Relationship (Form 56)
Info Auth (8821)
Change in Accounting Method (3115)
Info Return of U.S. Persons (5471)
Asset Acquisition Statement (8594)
Election for Other Tax Year (8716)
Required Payment of Refund (8752) Partnership and S Corps
Change of Address (8822-B)
Treaty-Based Return (8833)
Pre-Screening Notice for Emp. (8850)
Qualified Sub. S Subsidiary Election (8869)
Tax Shelter Statement/Form (8886)
Employer I.D. Number App. (SS-4)
Conclusion
Itemizing deductions can be a powerful tool to reduce your taxable income and potentially save you money. However, it requires careful record-keeping and a thorough understanding of eligible expenses. By evaluating your financial situation and comparing it to the standard deduction, you can make an informed decision about which method will benefit you the most. Whether you choose to itemize or take the standard deduction, being proactive and organized with your tax planning can help you make the most of your potential tax savings.
It’s advisable to consult a Certified Tax Professional or refer to IRS instructions to ensure proper filing and compliance.
See Also: One Big Beautiful Bill
See Also: Tax Planning (password protected) Contact us for a code
Comments