For many of the people I work with, higher income families, taxes are the big pain point. Unfortunately, there is no magic way to reduce them. But the government does incentivize certain actions that come with real tax benefits, and knowing how to use them matters.
All of us, whether you're a W2 employee, 1099 contractor, or business owner, have the opportunity to deduct certain expenses. This happens on Schedule A of your personal 1040. The main categories are:
- Medical expenses
- State and local taxes (SALT)
- Mortgage interest
- Charitable contributions
- Casualty and theft losses
So how do these actually work, and how do you know if they'll lower your tax bill?
Standard vs. Itemized
Back in 2017, the Tax Cuts and Jobs Act (TCJA) roughly doubled the standard deduction. Ever since, you've had a choice each year: take the standard deduction, or itemize. If you want to lower your taxes, you take whichever is higher.
For 2026, the standard deduction is:
- $16,100 for single filers and married filing separately
- $32,200 for married filing jointly
- $24,150 for head of household
If your itemized deductions don't clear these thresholds, you'll just take the standard deduction, no extra effort required. Here's how each itemized category works.
Medical Expenses
These cover unreimbursed medical and dental expenses, but only the portion above 7.5% of your adjusted gross income (AGI) counts. AGI is generally a bit lower than your gross income, since things like health insurance premiums, 401(k) contributions, and deductible IRA contributions come out first.
So if your AGI is $400,000, only medical expenses above $30,000 are deductible. That's a high bar. But if you've had a year with major medical bills, family care costs, or unexpected procedures, it's worth adding everything up. These costs accumulate faster than people expect.
State and Local Taxes (SALT)
This one changed significantly with the passage of OBBBA last year. The SALT deduction includes state income taxes and local taxes, including property taxes, and is now capped at $40,000, up from the previous $10,000 cap.
That's a meaningful shift for people in high tax states or with high property tax bills. One important detail: once your AGI crosses $500,000, the $40,000 cap starts phasing down. By $600,000 of income, you're back to the old $10,000 cap. If you're in that income range, this is an area where timing and planning really matter.
Mortgage Interest
Mortgage interest is deductible on the first $750,000 of mortgage balance. So if your mortgage is $1,000,000, only interest on the first $750,000 is deductible. Home equity loan interest can also qualify, but only if the funds were used for home improvements. Interest tracing rules apply here, so the IRS will want documentation showing exactly what the loan proceeds were used for.
Charitable Contributions
OBBBA also changed the rules here. There's now a small deduction available to non-itemizers too, up to $1,000 for single filers and $2,000 for married couples.
If you do itemize, a couple of new rules apply. There's a floor of 0.5% of AGI that your donations need to exceed before any of it counts. And if you're in the top 37% tax bracket, your charitable deduction is effectively capped at a 35% benefit rather than the full 37%. Different types of donations also have their own ceilings, cash donations can generally go up to 60% of AGI, which is a high number for most people.
For higher-dollar giving, strategies like bunching multiple years of donations into one, using a donor-advised fund, or setting up a charitable remainder trust can help you get a bigger deduction in a single year. Donating appreciated stock instead of cash is another way to get more value out of the same gift.
Casualty and Theft Losses
This category covers losses from things like fires, storms, or theft. Since TCJA, this deduction has generally only been available for losses connected to a federally declared disaster, not everyday casualty events. If you've had a loss like this, it's worth a closer look at whether it qualifies, but the bar to claim it is narrower than it used to be.
Wrapping It Up
Itemizing isn't about finding a loophole, it's about knowing which of your real, everyday expenses the tax code already rewards you for. Most years, the standard deduction wins for most people. But if you're carrying high medical costs, a big mortgage, significant state taxes, or making meaningful charitable gifts, it's worth running the numbers each year to see which option actually saves you more.
As always, work with your financial advisor and accountant to see how these apply to your specific situation.
