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When you file your federal income tax return each year, you must make key decisions, including whether to take the standard deduction or itemize your deductions.
The standard deduction reduces your taxable income by a set amount depending on your income, age, filing status and other factors. If you itemize your expenses instead, taxable income is reduced based on the total of specific deductions you’re eligible to claim. Either choice can reduce your taxable income, and it’s up to you to figure out which one is worth more.
If you decide itemizing is the way to go, you’ll have to detail all the deductions you want to take on Schedule A. Here are some things to know about Schedule A and the itemized deductions you may be eligible to take.
- What is IRS Schedule A?
- What deductions can you claim on IRS Schedule A?
- Using Schedule A to itemize deductions
- When is it worth itemizing your deductions?
What is IRS Schedule A?
If you want to itemize your deductions on your federal return, you must file IRS Schedule A along with your federal Form 1040. Schedule A, the itemized deductions form, lists the different types of expenses you may be able to deduct from your taxable income, such as medical and dental expenses, home mortgage interest and charitable contributions.
Of course, all these deductions have rules governing who’s eligible to take them and how much you can take for each expense you’re eligible to deduct. So it’s important to read the instructions that accompany your 1040 and Schedule A.
What deductions can you claim on IRS Schedule A?
Some itemized deductions you may be able to claim on Schedule A include the following:
- Medical expense deduction: If you had qualified medical or dental expenses that exceeded a set percentage of your adjusted gross income in the tax year, you might be able to take this deduction. You’ll report these expenses on Line 1 of Schedule A and the deductible portion will be reported on Line 4 of the schedule.
- Home mortgage interest deduction and points paid: The Tax Cuts and Jobs Act of 2017 reduced the amount of home acquisition debt for which you can deduct the interest you paid. For example, if you took out a mortgage or home equity loan in the tax year to buy, build or substantially improve the home that’s securing the debt, and you’re married filing jointly, you can only deduct the interest you paid on the first $750,000 of the qualifying debt ($375,000 for married couples filing separately). The change only affects new loans taken out after Dec. 15, 2017. If your loan predates that and you’re married filing jointly, you may still be able to deduct interest on up to $1 million of home acquisition debt. The total of your home mortgage interest and points gets reported on Line 8e of Schedule A.
- SALT deduction: You may be able to deduct up to $10,000 of certain state and local taxes you paid during the tax year ($5,000 if you’re married filing separately). These state and local tax totals get reported on Line 5d of Schedule A.
- A deduction for investment interest: This can be reported on Line 9 of Schedule A, if you qualify for this deduction.
- Charitable contribution deduction: You may be able to deduct certain contributions to qualified organizations and charities that equal up to 60% of your contribution base (for many taxpayers, this will be their adjusted gross income). The total deduction amount is reported on Line 14 of Schedule A.
- Casualty and theft losses: If you incurred losses due to a federally declared disaster and the amount of each separate loss exceeds $100, you might be able to claim this deduction on Line 15 of your Schedule A. Additionally, the total amount of all losses during the year (less the $100 for each separate loss), must exceed 10% of the adjusted gross income you report on Line 7 of your 1040 tax return.
- Other itemized deductions: These are reported on Line 16 of your Schedule A and include (but are not limited to) gambling losses, federal estate tax on the income of a deceased person, and deductions for impairment-related work expenses for someone who is disabled. The Instructions for Schedule A detail other deductions you can claim.
Tax deduction vs. tax credit: What’s the difference?
Tax deductions and tax credits both work to reduce your tax burden, but they do so in different ways. Deductions reduce the amount of income you pay taxes on, which means you could end up paying less tax. Meanwhile, tax credits are dollar-for-dollar reductions in the amount of tax you owe. Learn more about tax deductions and tax credits.
Using Schedule A to itemize deductions
Along with Schedule A, you may need to submit other forms with your tax return when claiming specific deductions.
- If you claim a deduction for investment interest, you may be required to include Form 4952.
- If you claim a deduction for charitable gifts over $500 by means other than cash or check, you need to include Form 8283.
- If you claim a deduction for casualty and theft losses from a federally declared disaster, you’ll need to include Form 4684.
These forms provide additional information the IRS needs to make sure you’re eligible for the deduction or to calculate the amount of the deduction you’re eligible to take.
For some of your other deductions, the IRS receives forms from other parties proving your eligibility, so you don’t have to send them in yourself. For example, if you paid $600 or more in mortgage interest, your lender sends you Form 1098 detailing interest you’ve paid. But you don’t have to submit that form with your income tax return. Instead, it’s provided for you to keep for your own records.
If you claim any itemized deductions, you must be able to provide proof you’re eligible for them. This means keeping receipts for medical costs, charitable gifts you’ve given, taxes or interest paid, and all other expenses you itemize.
When is it worth itemizing your deductions?
It generally makes sense to itemize your deductions if the total value of the deductions you’re eligible to claim on Line 17 of Schedule A exceeds the standard deduction for your filing status.
For the 2016 tax year, just 30% of individual returns included itemized deductions. And taxpayers with higher incomes were far more likely to itemize. A Tax Policy Center report says that just 7% of households with adjusted gross incomes less than $30,000 itemized in 2014, compared with more than 90% of households with adjusted gross income of $500,000 or more.
Even fewer people were expected to itemize for the 2018 tax year. That’s because tax reform temporarily increased the standard deduction from $12,700 to $24,000 for married couples filing jointly and surviving spouses, from $9,350 to $18,000 for head-of-household filers, and from $6,350 to $12,000 for single filers and married individuals filing separately. This increased standard deduction is in effect for tax years 2018 through 2025.
Unless the combined value of the deductions you’re eligible to claim using Schedule A exceeds this new higher standard deduction — or unless you’re not eligible to claim the standard deduction — it may not make financial sense to itemize. Also, claiming the standard deduction can make filing your tax returns easier, because you won’t need to submit IRS Schedule A or the forms that go along with it. But some taxpayers may not be eligible to itemize, like a taxpayer using the married filing separately status whose spouse itemizes.
Itemizing means you claim deductions for specific things, like home mortgage interest or certain property taxes, instead of claiming the standard deduction. If you submit Schedule A, you may need to include certain additional forms and documentation to prove your eligibility for deductions you claim.
Thanks to tax reform, more taxpayers are expected to claim the standard deduction. Some people with significant medical expenses, high mortgage or local tax costs, big charitable donations, or certain other big expenses eligible for deduction may be more likely to itemize deductions. Any taxpayer who itemizes must submit IRS Schedule A, along with any forms required for deductions claimed.
You can use the Credit Karma Tax® free online tax-preparation filing service to help you determine whether it’s better to itemize or take the standard deduction this year, and to file your federal income tax return and single-state tax return for free.
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.