Itemized deductions are tax deductions that are used instead of the usual standard deduction. They are the money subtracted from your income before the actual calculation of your income tax. Itemized deductions are usually composed of your medical expenses, property taxes, taxes you pay on the state and local level, mortgage points, mortgage interest, donations to charity, and many other miscellaneous losses and expenses. You may choose to itemize your deductions if your actual standard deduction is too low for accurate reflection of your deductible expenditures and basic expenses, or if you are not qualified for a standard deduction. To itemize your deductions, you should use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions. Here is how you can report itemized deductions to the IRS.
- Make sure you are qualified for itemized deductions. Aside from having a too low standard deduction, taxpayers who do not qualify for standard deductions are the non-resident and dual-status aliens, people who file for less than 12 months, those whose spouses have already filed an itemized deduction and estates, trust funds and partnerships.
- Gather the necessary records. Get all the receipts for business and documents of the expenses for the tax deductible items, contributions to a deductible retirement, medical and educational savings account and business expenditures. You may also need to get all the W-2 and 1099 forms from your employer/s.
- Fill out an Individual Tax Return, IRS Form 1040. You may download the form and fill out the necessary information. This is available at the official IRS website. Taxpayers that file itemized deductions cannot file the IRS form 1040EZ.
- Download the Schedule A and fill it out. You can download Schedule A on the official IRS website. Follow the instructions at the link where you got Schedule A, and fill it out line-by-line. The instructions have the items which you can and cannot deduct. Your medical expenses can be deducted only if they exceed 7.5% of your annual income.
- Compare your itemized deductions to the standard deduction of your file category. The standard deduction for tax year 2010 for most taxpayers is about $5700. The head of the household can subtract $8400, and taxpayers who are married that are filing jointly can subtract $11400 from their income. If the standard deduction is greater than the itemized deduction, you should use the standard deduction.
- Complete the forms. After completing them, sign the Schedule A and the Form 1040. Return them to the nearest IRS servicing center with any schedules that are indicated by the Form 1040. There is a list of servicing centers at the back portion of the instructions for the IRS Form 1040.
Reporting itemized deductions will be easy if you are knowledgeable about which to include and which not to. Reporting itemized deductions may save you more money than the standard deduction. Follow the instructions above and on the official website of the IRS to make sure you are correctly filling out the forms, and your itemized deductions will be counted.