Itemized Deduction


DEFINITION of 'Itemized Deduction'

A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year. The specific deductions that are allowed are outlined by the Internal Revenue Service and include such expenses as mortgage interest, state and local taxes, gifts, and medical expenses.

BREAKING DOWN 'Itemized Deduction'

Usually, an itemized deduction is limited to a certain percentage of adjusted gross income. As an alternative to standard deduction, an itemized deduction requires taxpayers to keep track of each possible tax-reducing expense throughout the year.

Individuals who frequently spend large amounts on medical care, state and local taxes, donations or other deductible expenses may be better off itemizing. However, tax law may set thresholds in spending that must be exceeded before the deductions can be made. For example, in the medical category, perhaps only expenses that exceed 7.5% of your adjusted gross income may be deducted. If you didn't spend at least that much, then none of your medical expenses will be deductible.

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  1. How long do I need to keep income tax records?

    Keep all tax-related records for at least three years. For example, keep your 2015 tax return, filed in early 2016, at the ... Read Full Answer >>
  2. What is the difference between a state income tax and a federal income tax?

    The United States has a multi-tiered income tax system under which taxes are imposed by federal, state and most local governments. ... Read Full Answer >>
  3. How can I make sure I get all my eligible deductions?

    Most tax preparation software does a good job. However, like any recipe, the end results are only as good as what goes into ... Read Full Answer >>
  4. Which is better for tax deductions, itemization or a standard deduction?

    Each deduction that you claim may result in a decrease in the amount of taxes that you owe. However, whether you receive ... Read Full Answer >>
  5. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
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