Itemized deduction

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Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and are claimable in place of a standard deduction, if available.

Most taxpayers are allowed a choice between itemized deductions and the standard deduction. After computing their adjusted gross income (AGI), taxpayers can itemize deductions (from a list of allowable items) and subtract those itemized deductions from their AGI amount to arrive at the taxable income. Alternatively, they can elect to subtract the standard deduction for their filing status to arrive at the taxable income. In other words, the taxpayer may generally deduct the total itemized deduction amount or the applicable standard deduction amount, whichever is greater.

The choice between the standard deduction and itemizing involves a number of considerations:

• Only a taxpayer eligible for the standard deduction can choose it.
• U.S. citizens and aliens who are resident for tax purposes are eligible to claim the standard deduction. Nonresident aliens are not eligible.
• If the taxpayer is filing as "married, filing separately," and his or her spouse itemizes, then the taxpayer cannot claim the standard deduction. In other words, a taxpayer whose spouse itemizes deductions must either itemize as well or claim "0" (zero) as the amount of the standard deduction.^[1]
• The taxpayer must have maintained the records required to substantiate the itemized deductions.
• If the amounts of the itemized deductions and the standard deduction do not differ much, the taxpayer may take the standard deduction to reduce the possibility of adjustment by the Internal Revenue Service (IRS). The amount of the standard deduction cannot be changed following an audit unless the taxpayer's filing status changes.
• If the taxpayer is otherwise eligible to file a shorter tax form such as 1040EZ or 1040A, he or she would prefer not to prepare (or pay to prepare) the more complicated Form 1040 and the associated Schedule A for itemized deductions.
• The standard deduction is not allowed for calculating the alternative minimum tax (AMT). If the taxpayer claims the standard deduction for regular income tax, he or she cannot itemize deductions for the AMT. Thus, for a taxpayer who pays the AMT (i.e., their AMT is higher than regular tax), it may be better to itemize deductions, even if it produces a result that is less than the standard deduction.

Deductions are reported in the tax year in which the eligible expenses were paid. For example, an annual membership fee for a professional association paid in December 2009 for the year 2010 is deductible in the year 2009.

The United States has a comparatively large and complicated number of deductions owing to policymakers' preference to pass policy through the tax code.