An itemized deduction is a reduction of a taxpayer's adjusted gross income, and is taken instead of a standard deduction. This deduction is based on certain kinds of expenditures made by the taxpayer during the tax year. A number of itemized tax deductions are allowed under the tax code, including the following:
Business use of the home or automobile
Income taxes, state and local
Real estate taxes
Work-related education expenses
In order to take advantage of itemized deductions, a taxpayer must keep adequate records of these expenditures, typically including supplier receipts.
Itemized deductions are limited based on the amount of adjusted gross income reported by a taxpayer. Some of these deductions can only be used once they exceed a certain threshold amount, so that modest expenditures may not result in an itemized deduction.