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What Is an Itemized Deduction?

Learn about itemized deductions in this Howcast finance video with expert Gregory McGraime.

Transcript

Your itemized eductions are really important. Because if are itemizing your deductions, you can add up all these deductible expenses and subtract that amount from your taxable income. So your lowers your taxable income and paying tax on a smaller number. So let me give you a little background. Every tax payer has the opportunity to either claim either the standard deduction or to itemize their deductions. Whichever provides a greater tax benefit. The challenge is two thirds of the population claim the standard tax deduction. They don't itemize. So what are some example of some itemized deductions? The most common are mortgage interest, real estate taxes, state and local sales tax, charitable contributions. Things like that. And so what your doing is as your filling out your tax return, your adding up all your itemized deductions and your seeing if that's going to result in a better tax benefit then taking the standard deduction. The challenge is a lot of people take the standard deduction because its easier and they may be missing out on a lot of benefits. These items are only deductible if your taking, itemizing deductions. If you take the standard deduction and you contribute money to charity, that contribution is not tax deductible and a lot of people dont realize that. So what you wanna do, go through the full list of itemized deductions, make sure your taking full advantage of all of them and compare that number to the standard deduction. And if it's greater, then itemizing is the way to go and it's going to save you money on your tax bill.

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