Itemizing Basics

• Itemizing income tax deductions means detailing specific allowable deductions as opposed to claiming the IRS allowed standard deduction for single or married tax filers. Home owners can deduct taxes and loan interest. Medical expenses are deductible if they exceed a certain percentage of your income. Child care expenses are also deductible. If you have significant expenses in these categories, it likely makes more sense to itemize your deductions to optimize your savings.
  
  

Standard Deductions

• The IRS announced in December 2010 that it was raising standard deduction levels for the 2011 tax year. Couples filing a joint return for 2011 can claim a standard deduction of $11,600, which is up by $200. Single filers and married people who file separately can claim $5,800 in standard deductions, up $100. Heads of household filers received a $100 boost from 2010 to $8,500. Generally, it is sensible to use the itemized deduction option if your personal deductions exceed the standard deduction alternative. According to the IRS, "nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods" are required to use the standard deduction.
  
  

How it Works

• When you take deductions on your income tax return, you reduce your taxable income. This is different from tax credits, which lower your amount of tax owed or directly increase your refund. Naturally, when your taxable income is reduced, the amount you owe is reduced. Assume you paid $3,000 toward federal taxes through your employer. Next, assume that your itemized deductions are $5,000 more than the standard option. This means a $5,000 lower taxable income, lowering your tax obligation by around $1,000. This could take your obligation from $2,800 to $1,800, increasing your refund from $200 to $1,200.
  
  

Claiming Deductions

• Taking the standard deduction is fairly simple. You claim that on tax Forms 1040, 1040A or 1040EZ, notes the IRS. Schedule A of the Individual Income Tax Return Form 1040 is where you claim itemized deductions. Many tax software filing solutions have you itemize your deductions in a worksheet and the amounts are automatically recorded on the appropriately line on the form.