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When filing a tax return in the United States, taxpayers can access different deductions that allow them to reduce their income subject to federal taxes.
The Internal Revenue Service (IRS) distinguishes between the standard deduction and itemized deductions. Although both have the same objective, they work differently and choosing the most convenient one depends on each taxpayer’s situation.
How does a standard deduction differ from an itemized deduction?
The standard deduction is a fixed amount that depends on the taxpayer’s filing status. The IRS adjusts it annually for inflation and includes additional amounts for people aged 65 or older and for blind people.
By contrast, itemized deductions allow certain expenses incurred during the tax year to be deducted, provided they meet the requirements established by the regulations. Instead of applying a fixed amount, the expenses that can be legally deducted are added up.
In general, taxpayers must choose one of these two methods, since they cannot use both in the same return.
How do you know which one is best to choose, according to the IRS?
To know which one is best to choose, the IRS recommends comparing the amount of the standard deduction that applies to the taxpayer with the total of the expenses that can be included among itemized deductions.
In general, it is best to choose the option that allows for a larger reduction in taxable income.
For example, for tax year 2026, if a person is entitled to a standard deduction of US$16,100, but has US$18,000 in allowed deductible expenses, they could benefit from choosing itemized deductions.
However, there are people who cannot claim the standard deduction. These include married taxpayers who file separately when their spouse uses itemized deductions.
How are deductions itemized?
Taxpayers who choose this method must complete Schedule A of Form 1040, where the expenses that can be deducted from taxable income are identified and calculated.
Among the items recognized by the IRS are:
- Medical and dental expenses: certain healthcare costs that were not reimbursed.
- State and local taxes: payments of income or sales taxes, real estate taxes, and certain personal property taxes.
- Mortgage interest: interest on qualifying mortgage loans.
- Charitable donations: contributions made to authorized organizations.
- Disaster losses: certain losses that meet legal requirements.
- Gambling losses: amounts that can be deducted within established limits.
To complete the schedule, the expenses that meet the requirements must be identified, how much can be deducted for each item must be calculated, and the allowed amounts must be added up.
In addition, the IRS recommends keeping receipts and documents that support the deductions claimed.
What are the limitations of itemized deductions?
Not all expenses can be deducted in full, since the IRS sets specific limits for each category.
In the case of medical and dental expenses, only the portion of eligible unreimbursed expenses that exceeds 7.5% of the taxpayer’s adjusted gross income can be deducted.
State and local taxes have a maximum amount that can be deducted each year. For their part, the limits on mortgage interest depend on how much money was borrowed, when the loan was taken out, and what it was used for.
As for charitable donations, the allowed amount depends on the type of contribution, the beneficiary organization, and the applicable limits. Disaster losses must also meet specific requirements and, in general, be related to disasters declared by the federal Government.
Finally, for tax year 2026, gambling losses can be deducted up to 90% of their value, without exceeding the winnings obtained from those activities.