How Itemized Deductions Work


Who Itemizes Deductions?

Only 30 percent of all federal income tax filers itemized their deductions in 2014, the latest data at the time of publication [source: Greenberg]. For the majority of Americans, the standard deduction offers a better deal than itemizing. They simply don't have enough deductible expenses to add up to more than $12,000 for an individual or $24,000 for a married couple filing jointly.

It's likely that the number of people itemizing will fall since the standard deduction increased so much for tax year 2018 (up from $6,500 for single filers and $13,000 for married filers). One reason Congress gave for doing this was to simplify the tax return, so there would be less need to itemize [source: Tax Foundation].

Itemizing deductions probably makes the most sense to higher-income earners who generally pay more for deductible expenses like mortgage interest, state and local taxes, charitable donations and medical expenses.

A 2017 report by the Congressional Research Service found some interesting data on who itemizes in America:

  • Only 17 percent of households earning $20,000 or less itemized in 2014.
  • 46 percent of households earning $50,000 to $100,000 itemized their returns.
  • 93 percent of households earning $200,000 to $500,000 itemized.

Perhaps not surprisingly, the highest income earners claimed an outsized number of deductions in 2014.

  • Households earning $50,000 to $100,000 filed the greatest number of itemized returns (33.6 percent) but only claimed 23.5 percent of total deductions.
  • Households earning $250,000 to $500,000 filed 30.6 percent of itemized returns and claimed 28.5 percent of total deductions.
  • Households earning more than $1 million only filed 0.8 percent of itemized returns but claimed an outsized 13.1 percent of total deductions.

For lots more information on income taxes and personal financial planning, check out the related HowStuffWorks articles below.

Last editorial update on Jan 17, 2019 01:15:27 pm.

Author's Note: How Itemized Deductions Work

When it comes to filing taxes, I am a walking red flag. First of all, I'm self-employed, which automatically makes me suspicious to the IRS. To make it worse, I claim the home office deduction, I earn some of my income from outside the United States, and I itemize my deductions. I put a lot of trust in tax software to keep me honest and flag any questionable deductions. To be honest, I'm so terrified of an audit that I'm more likely to cheat myself out of deductions than cheat Uncle Sam. Not to mention I make so little money that it's hardly worth the IRS's trouble to hunt me down.

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Sources

  • Eisenberg, Richard. "IRS Audits: Your Odds and Best Strategies." Forbes. April 16, 2013 (Oct. 21, 2014) http://www.forbes.com/sites/nextavenue/2013/04/16/irs-audits-your-odds-and-best-strategies/
  • Government Accountability Office. "Further Estimates of Taxpayers Who May Have Overpaid Federal Taxes by Not Itemizing." March 29, 2002 (Oct. 21, 2014) http://www.gao.gov/products/GAO-02-509
  • Internal Revenue Service. "Itemized Deductions." (Oct. 21, 2014) http://www.irs.gov/instructions/i1040sca/ar01.html
  • Internal Revenue Service. "Limit on Itemized Deductions." (Oct. 21, 2014) http://www.irs.gov/publications/p17/ch29.html
  • Internal Revenue Service. "Standard Deduction." (Oct. 21, 2014) http://www.irs.gov/publications/p17/ch20.html#
  • Lowry, Sean. "Itemized Tax Deductions for Individuals." Congressional Research Service. Feb. 12, 2014 (Oct. 21, 2014) http://fas.org/sgp/crs/misc/R43012.pdf
  • Sit, Harry. "Tax Deductions: Above-the-line, Standard, Itemized, and Miscellaneous." The Finance Buff. Feb. 18, 2009 (Oct. 21, 2014) http://thefinancebuff.com/tax-deductions-above-the-line-standard-itemized-and-miscellaneous.html