April 2016

To Itemize or Not to Itemize?

By Amy K. Frantz

As we file our taxes each year, we all come to the question of whether to use the standard deduction or to itemize our deductions. Itemizing requires more paperwork, but can result in less tax owed.  Tax Foundation recently analyzed federal tax data for the 2013 tax year, the most recent available from the IRS, to discover who is itemizing their deductions and what the most popular itemized deductions are.[1]  These are the results.

A little over 30 percent of households, or 44 million tax returns, opted to itemize on their federal taxes. Nearly 70 percent used the standard deduction, accounting for 101 million tax returns.  Just under 2 percent of households had no or a negative adjusted gross income, and thus could take no deductions.

The higher one’s income, the more likely a taxpayer will choose to itemize rather than take the standard deduction. For those with household income under $25,000, 6 percent chose to itemize deductions.  Those with income between $50,000 and $75,000 itemized 41.7 percent of the time.  Just under 79 percent of those with income between $100,000 and $200,000 itemized deductions rather than using the standard deduction.

Scott Greenberg of Tax Foundation says this should not be surprising. “Households with high incomes are likely to pay more in state and local taxes, take out larger mortgages, and have more disposable income to donate to charity – each of which can lead to a sizeable deduction for households that itemize. Furthermore, deductions are more valuable for households that fall into higher tax brackets, giving high-income households a stronger incentive to keep the necessary records to itemize.”

What are the most popular deductions for those who do itemize? Greenberg indicates that the deduction claimed most often is for state and local taxes paid.  This would include income or sales taxes, as well as property taxes.  “Out of the 44 million households that itemize deductions, almost 43 million deduct the taxes they pay to state and local governments,” said Greenberg.

The next most popular deduction for those who itemize is for charitable contributions, claimed by 36 million households. Following that, a deduction for interest paid, which includes the mortgage interest deduction, is the third-most popular.  “Altogether, the three biggest deductions reduce Americans’ taxable income by over $1 trillion every year,” stated Greenberg.  Other deductions include those for tax preparation fees, medical & dental expenses, gambling losses, and casualty or theft loss, among others.

Did you choose to itemize your deductions this year? If you did, you were among the nearly one-third of the nation’s taxpaying households that opted for a bit more paperwork (or sometime more than a bit more!) in order to reduce your tax burden.

Amy K. Frantz is Vice President of Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] Scott Greenberg, “Who Itemizes Deductions?” Tax Foundation’s Tax Policy Blog, February 22, 2016, <http://taxfoundation.org/blog/who-itemizes-deductions> accessed March 15, 2016; and Scott Greenberg, “The Most Popular Itemized Deductions,” Tax Foundation’s Tax Policy Blog, February 29, 2016, <http://taxfoundation.org/blog/most-popular-itemized-deductions> accessed March 15, 2016.