Itemized deductions: What they are, types, and how to claim them

If you’re dreading your tax bill this season, the deductions you choose to claim can make all the difference in how much you’ll owe (or save). When filing taxes for the year, all taxpayers must decide whether to use standard or itemized deductions—personal or “individual” expenses you can claim—to reduce your taxable income. 

When you’re self-employed or a small business owner, sometimes the line between personal and business expenses can get blurry. Depending on your situation, itemizing your deductions may be the best choice to maximize your savings. 

In this article, we’ll cover everything you need to know about itemized deductions, including the most common ones and what forms you’ll need to file.

How itemized deductions work

To claim your itemized deductions, you’ll use Schedule A (Form 1040) to list and calculate your eligible expenses. You’ll then subtract the total from your gross income. What remains is deemed your taxable income.

You can find detailed instructions for the eligible expenses on the IRS website. Make sure you keep receipts for all of your business-related expenses.  

After adding up your eligible expenses, you can compare them to the standard deduction. You’ll only want to itemize deductions if the total amount is greater than the standard deduction. While it generally takes more time and effort to keep up with receipts throughout the year, it’s worth the bigger tax refund or smaller tax bill. 

Itemized vs. standard deduction

While an itemized deduction is an individual expense you can claim, a standard deduction lowers your taxable income by a preset amount. These set amounts are based on your filing status. 

Below are the standard deduction amounts for the 2024 tax year:

• Single or married filing separately: $14,600
• Married filing jointly: $29,200
• Head of household: $21,900

Most people are eligible for the standard deduction on their tax return, but it may not always get you the maximum tax deduction. Instead, it might be best to itemize your deductions.

Types of itemized deductions

Itemized deductions can be a range of expenses from both personal and self-employed business transactions. Below are the most common expenses you can write off:

Medical expenses

If you are self-employed or own your own business and that business has a profit, you can deduct the cost of your self-employed health insurance premiums from your taxable income directly on 1040, whether you itemize or not. Otherwise, you can include health insurance premiums you pay out of pocket (not through payroll deductions) as an itemized deduction.

You can also write off any medical and dental expenses that you pay out of pocket for yourself, your spouse, or dependents. These expenses include inpatient care, prescriptions, long-term care premiums, and physician fees. 

Note that you cannot itemize anything for which you received reimbursement, such as from an employer-sponsored health plan. Also, for your expenses to qualify, they must be greater than 7.5% of your adjusted gross income (AGI). 

Charitable contributions

If you’ve made significant charitable donations in the last year—whether as a business or an individual—you can include those in your itemized deductions. Contributions are any voluntary gift to qualified organizations, such as nonprofit religious and educational programs. 

If you are self-employed and your business makes business charitable contributions, those will also be deducted on Schedule A along with your charitable contributions. 

If you're filing as an S-corporation or a partnership, your portion of the business charitable contributions will be reported to you on the Schedule K-1 you receive from the S-corporation or partnership. You will report your portion of the business charitable contributions on Schedule A. Generally, contributions can't exceed 60% of your AGI for cash contributions.

Mortgage interest

If you own or pay the mortgage on your home, you can and should receive a deduction on your mortgage interest. To do so, your mortgage lender should send you a Form 1098 outlining the deductible interest and points, which are charges associated with getting a home mortgage, that you’ve paid over the past year. 

You may also be able to deduct certain mortgage points that you’ve paid if you’ve:

• Refinanced or bought your home in the past year
• Used your home as a rental property
• Performed renovations/made home improvements

Remember that there are mortgage interest limits, in which the deduction is only for the first $750,000 of mortgage debt for your first or second home (or $375,000 for married couples filing separately). 

Taxes paid

You can deduct personal property taxes—including real estate, state, and local taxes—for the past year. This also applies if you occasionally rent out your home or a portion of it to receive extra income. It must, however, be no more than 14 days out of the year. 

Note that these deductions are limited to $10,000 (or $5,000 if married filing separately). Additionally, if you itemized these deductions the previous year, you must count any tax refund as income. 

Casualty and theft losses

Losses from casualty and theft occur due to federally declared disasters, such as earthquakes and hurricanes. Refer to the Schedule A instructions to find out more about the rules and exceptions to what you can claim. 

Other itemized deductions

There are also less common, miscellaneous personal expenses you can itemize. This includes gambling losses, and federal estate tax on income. 

As for self-employed business expenses, the following qualify as deductions:

• Advertising and promotion
• Legal and professional fees
• Business insurance
• Home office
• Business use of your car 

Be sure to keep these business expenses separate from your personal expenses, as you will need to distinguish between the two when filing your taxes. Please note that self-employed business expenses are deducted on Schedule C, not on Schedule A.

Pros and cons of itemized deductions

Of course, there are a few tax rules to consider before itemizing deductions. Depending on your unique situation, one type of deduction may work more in your favor than the other.

Here are some pros and cons of itemized deductions:

Pros

• Potentially add up to more than the standard deduction, lowering your tax bill
• Ability to claim more expenses 
• Option for taxpayers of all tax brackets to claim

Cons

• Adding up and recordkeeping individual claims takes more time and effort than taking a standard deduction.
• Intricate rules to understand that typically require help from a tax professional
• Requires sufficient documentation to back up your claims

Although it’s a time-consuming process, the extra steps required for itemized claims may be worth it for the amount of money you’ll save in taxes. 

How to claim itemized deductions

Since you can’t claim both standard and itemized deductions, figure out your adjusted gross income first to determine which one gives you the greatest deduction. If your itemized deductions exceed your standard deduction amount, you will claim all of your expenses on Schedule A (Form 1040) with your tax return. Here’s how:

1. List your deductions on their corresponding lines of your Schedule A.
2. Total them up.
3. Copy that total amount to the second page of the Form 1040.
4. Subtract this amount from your income to determine your final taxable income amount.

Make sure that you meticulously keep records, such as saving receipts and bank statements. You’ll also need to separate your business from your personal expenses since there’s a difference between self-employed deductions and those you can take as a normal taxpayer.

Find peace of mind come tax time 

Itemizing deductions can lower your personal tax liability, and posting business deductions will decrease your taxes on business income. Both can be a huge help come tax filing season. If you have questions regarding personal vs. business itemized deductions, it’s best to ask a tax accountant or other tax professional. 

Remember, the most important part of taking deductions is keeping your receipts. Doing so ensures that your deductions are as accurate as possible in the event of an audit. 

Wading through receipts can be a headache. Fortunately, tools like Quickbooks Solopreneurs allow you to manage files, taxes, and more all in one place.

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