Itemized Deductions: What They Are and How To Maximize Your Tax Return

Itemized deductions let you subtract certain qualified expenses from your taxable income, potentially saving you thousands more than the standard deduction.  

Disclaimer: This content is for informational purposes only and should not be considered tax, legal, or financial advice. Always consult a qualified professional regarding your specific situation.

What Is an Itemized Deduction?

Itemized deductions are specific expenses the IRS allows you to subtract from your taxable income. 

Instead of taking the flat standard deduction, you add up your eligible costs—such as medical bills, mortgage interest, state and local taxes, and charitable donations—and if that total is higher than the standard deduction, you get to reduce your taxable income and save more money.

Most people default to the standard deduction because they are unsure which expenses qualify or how to calculate them. By understanding the requirements and running the numbers yourself, you can determine whether itemizing will save you more on your taxes.

Here’s a quick example: Let’s say you're a single filer with $18,000 in itemized deductions and the standard deduction is $15,000. By itemizing your deductions, you would reduce your taxable income by an extra $3,000, which could save you hundreds in taxes. 

The Big Five Itemized Deductions That Matter Most

These top itemized deductions typically make the biggest impact on your tax savings:

1. Medical and dental expenses that exceed 7.5% of your income

You can deduct qualified medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). 

Note that only the portion above that threshold counts toward your itemized deductions. This includes out-of-pocket costs and health insurance premiums paid with after-tax dollars.

Common eligible expenses include:

• Prescription medications
• Doctor and specialist visits
• Hospital stays and surgeries
• Medical equipment (like wheelchairs or CPAP machines)
• Dental procedures (cleanings, fillings, braces)
• Vision care (eye exams, glasses, contacts)
• Certain medically necessary cosmetic surgeries

Be sure to keep thorough records and receipts for these expenses. Large medical deductions can trigger IRS attention, so documentation is key. 

2. State and local taxes up to $10,000 total

You can deduct up to $10,000 (total) for state and local taxes (SALT), including:

• State income taxes or sales taxes (you can only choose one)
• Property taxes on your home or other real estate

This $10,000 limit is a combined cap across all eligible state and local taxes, not per category. If you live in a high-tax state, you’ll likely reach this cap quickly and benefit from the full deduction. 

To determine whether you should deduct state income tax or sales tax, do the math to figure out which will save you more. If you made several large purchases during the year, you might save more by deducting sales tax; if you had an unusual spike in income, deducting your state income tax may be the smarter option. 

3. Mortgage interest on loans up to $750,000

You can deduct interest on mortgage debt up to $750,000 for your primary residence and one additional home. Here’s what qualifies:

• Interest on loans for buying, building, or improving your home
• Home equity loan interest (if the funds were used for home improvements)
• Points paid when you purchased or refinanced your home (only in specific cases)

Keep in mind the $750,000 cap applies to your total mortgage debt across both properties, not per property. Your mortgage lender will provide a Form 1098 detailing the amount of interest paid, which you’ll need for your tax filing.

4. Charitable donations to qualified organizations

Donating to charity can lead to significant tax savings—if your donations meet the requirements. Here’s what is eligible for deductions:

• Cash donations: deductible up to 60% of your adjusted gross income
• Donated property (like clothing, furniture, or vehicles): may require a written appraisal if valued over $5,000
• Volunteer mileage: deductible at 14 cents per mile when driving for a charitable cause

Before claiming the deduction, check that the organization is a registered 501(c)(3) nonprofit to ensure it qualifies. Always keep receipts or a written acknowledgment from the organization, regardless of the donation amount, so you don’t miss out on any eligible deductions.

5. Casualty and theft losses from federally declared disasters

Only losses from federally declared disasters are eligible for this deduction. To claim it, you must first subtract $100 from the total loss, then reduce it by any insurance reimbursements.

Personal property losses that aren't linked to a declared disaster generally don’t qualify. To support your claim, keep thorough documentation—this includes photos, repair estimates, and any correspondence with your insurance provider.

Lesser-Known Itemized Deductions That Add up Fast

These lesser-known expenses can still reduce your taxable income if you qualify.

Investment-related expenses and tax preparation fees

While many miscellaneous deductions were eliminated by recent tax reforms, some still apply in specific situations. You may be able to deduct:

• Investment advisory fees directly related to taxable income
• Safe deposit box rentals used to store investment documents
• Tax preparation software or professional tax preparation fees
• Investment publications or research services you paid for separately

Make sure these expenses are directly tied to producing taxable income, and keep all documentation in case of an audit.

Job-related expenses for specific professions

While unreimbursed employee expenses are no longer deductible for most people, certain professions and situations still qualify. If your expenses fall into one of these categories, you may still qualify for a deduction:

• Professional licensing and certification fees required to maintain your job
• Education expenses directly related to maintaining or improving your job skills (not for switching careers)
• Work uniforms that are required and not suitable for everyday use
• Home office expenses if you're an employee working remotely (limited to strict IRS criteria)

These deductions can add up, so it’s worth checking if your profession qualifies under current tax laws.

How to Decide: Standard Deduction vs. Itemized Deductions

Before filing your taxes, follow these steps to decide which option will give you the greater tax benefit.

Step 1: Know your standard deduction amounts

To decide whether itemizing is worth it, start by identifying your standard deduction based on your filing status. This sets the baseline of the amount you’ll need to exceed with itemized deductions to yield more savings.

Here’s the standard deduction in 2025 based on your filing status: 

• Single filers: $15,000
• Married filing separately: $15,000
• Married filing jointly: $30,000
• Head of household: $22,500

Note: These amounts are adjusted annually for inflation, so always double-check the latest IRS figures before filing.

Step 2: Calculate your potential itemized deductions

Now that you know your standard deduction, it’s time to total up your itemized deductions to see which option gives you the bigger tax break.

Start by adding up your qualified expenses across the key categories covered earlier. If your total exceeds the standard deduction for your filing status, itemizing will reduce your taxable income more than taking the standard deduction.

You can use last year’s expenses as a ballpark figure if needed, but for the most accurate results, keep detailed records throughout the current year.

Step 3: Consider your state tax situation

Some states let you itemize deductions on your state tax return even if you take the standard deduction on your federal return. This can unlock extra tax savings that can make itemizing worthwhile overall. 

As a general rule, it’s worth checking into itemizing at the state level if you live in a high-tax state like California or New York.

But even if you're in a lower-tax or lower-cost-of-living state, it’s still smart to run the numbers—especially if you have deductible expenses like mortgage interest, medical bills, or charitable donations that might add up.

Step 4: Do some simple math

If your itemized deductions are higher than the standard deduction, itemizing makes sense. If not, go with the standard deduction. When the difference is small (just a few hundred dollars), consider whether the extra effort and documentation of itemizing is worth it.

If you’re using tax software, it will typically calculate both options and suggest the better one automatically. Remember, you can change your approach each year depending on your current financial situation.

Smart Strategies for Maximizing Your Itemized Deductions

If your itemized deductions are close to the standard deduction threshold, strategic timing can help you get the most out of itemizing. Here are some to consider:

Bunch deductions in alternating years

Instead of spreading deductible expenses evenly year to year, you can combine—or “bunch”—two years’ worth of deductible expenses into a single tax year. This lets you surpass the standard deduction threshold for that year and itemize your deductions, then take the standard deduction the following year.

For example: Suppose a married couple filing jointly typically has $22,000 in itemized deductions annually—just below the 2024 standard deduction of $29,200. By bunching expenses such as charitable donations and property taxes into one year, they could raise their total deductions to $35,000, allowing them to itemize that year. The next year, they would take the standard deduction.

Some of the most common expenses that can be strategically bunched include charitable donations, property taxes, medical expenses, and mortgage interest. For example, instead of spreading your charitable giving across two years, you might choose to make two years' worth of donations in a single calendar year. This can help push your total deductions above the standard deduction threshold, allowing you to itemize that year and take the standard deduction the next.

Similarly, you may be able to prepay or defer your property taxes—if your local jurisdiction permits it—to align the payment with other deductible expenses. In some cases, the timing of your mortgage interest payments could affect your eligibility to itemize, particularly if you're near the threshold.

However, there are important limitations and risks to consider. For one, state and local tax (SALT) deductions are capped at $10,000 annually, so even if you double up on property tax payments, you may not see additional benefit if you've already hit the limit. Additionally, those subject to the Alternative Minimum Tax (AMT) may find that bunching offers little or no advantage, as some deductions are limited or disallowed under AMT rules. Lastly, from a practical standpoint, accelerating payments—especially large ones—can create cash flow challenges, so it’s essential to ensure the strategy aligns with your broader financial picture.

Use donor-advised funds for larger charitable deductions

Donor-advised funds (DAFs) allow you to make a large charitable contribution in one year, take the full deduction that year, and distribute the funds to nonprofits over multiple years. 

This is particularly effective for people who receive bonuses or have variable income, as it allows them to maximize their tax deduction in high-income years while maintaining flexibility in their charitable contributions over time.

Time your medical expenses strategically

Medical expenses are only deductible once they exceed 7.5% of your adjusted gross income, so timing is crucial:

• Schedule elective procedures, dental work, and vision care within the same year.
• Pay outstanding medical bills before December 31 to include them in that tax year.
• Consider using a Health Savings Account (HSA) for current care and use regular funds to pay older bills for maximum deductibility.

This strategy works best when you expect unusually high medical expenses in a particular year.

Why Most People Make the Wrong Decision Between Standard and Itemized Deductions

Most people default to the standard deduction without running the numbers, but this could mean leaving money on the table. Here are three common reasons why this happens:

You're choosing convenience over accuracy

The standard deduction feels easier because it requires no receipts, calculations, or extra forms. Many people assume that if itemizing were the better option, their accountant or the tax software they use would point it out.

The reality is that millions of taxpayers could save more money by itemizing; they just never take the time to do the math. Choosing the easiest route might cost you more than you think.

You don't know which expenses actually qualify

Many people assume itemized deductions are only useful for high-income earners with complicated finances. In reality, common expenses like mortgage interest, property taxes, and medical bills often add up to more than the standard deduction.

If you are not aware of what qualifies, you might miss out on valuable tax savings. Even middle-income earners can benefit from itemizing, especially if they own a home or had high medical expenses during the year.

You're not tracking deductible expenses throughout the year

Most people think about deductions only during tax season, which is too late to backtrack and organize all their past receipts. Without consistent record-keeping, you can't accurately calculate whether itemizing would benefit you.

To make itemizing a potential option, you need to keep documentation for all medical costs, charitable donations, and job-related or business expenses as they happen throughout the year. 

When Itemizing Doesn't Make Sense

While itemizing deductions can potentially lead to higher tax savings, taking the standard deduction makes more sense in some cases.

Your total qualifying expenses are less than the standard deduction

There’s no need to itemize just because you have a few qualifying expenses. The key is to choose the option that gives you the larger deduction amount.

If the total of your itemized deductions doesn’t exceed the standard deduction, stick with the standard. It’s faster, easier, and still offers solid tax savings.

This is often the better route for renters, younger taxpayers, and those without significant medical bills or charitable contributions.

You can't properly document your claimed deductions

If you struggle to keep organized records of your expenses throughout the year, the standard deduction is usually the smarter choice.

Without proper receipts or documentation, you risk losing deductions if audited. The IRS requires clear proof for every itemized expense, and missing paperwork can lead to penalties or rejected claims.

Unless you’re confident in your record-keeping, it’s safer to stick with the standard deduction.

Your state doesn't allow itemizing on state returns

Some states require you to use the same deduction method on both your federal and state tax returns.

In these cases, it’s important to calculate your total tax savings across both returns before choosing. Even if itemizing saves you money federally, it might lead to higher state taxes that cancel out the benefit.

Always consider the combined outcome to make the most financially sound decision.

How Itemized Deductions Connect to Building Your Rich Life

Every dollar you save on taxes is a dollar you can put toward your Rich Life—whether that means investing, traveling, or spending more on what you love. Smart tax planning is one of the few guaranteed returns you can get with zero risk.

People who understand and apply itemized deductions can save between $1,000 to $3,000 a year. Over time, those savings can compound to financial freedom. It’s not just about saving money; it’s about making intentional choices that bring you closer to the life you truly want.