What is an Itemized Deduction?

An itemized deduction refers to the sum of specific allowable deductions that taxpayers can subtract from their Adjusted Gross Income (AGI) to lower their taxable income. This process enables individuals to detail specific expenses on their tax returns, such as mortgage interest, property taxes, medical expenses, and charitable contributions, among others. By itemizing deductions, taxpayers may reduce their overall tax burden if their total itemized deductions exceed the standard deduction amount set by the IRS for the tax year.

In this context, the focus on allowable deductions directly relates to how itemized deductions function as a component of the overall tax calculation, creating a clear pathway for taxpayers to lower their taxable income effectively. This understanding is fundamental for individuals looking to optimize their tax liability and make informed decisions on whether to itemize or take the standard deduction.