A more thorough explanation:

Itemized deductions are specific expenses recognized by the Internal Revenue Code that taxpayers can claim on their federal income tax return to reduce their taxable income. Deductions are a way for taxpayers to reduce their overall tax liability by subtracting certain expenses from their adjusted gross income (AGI) before calculating their tax bill.

Examples of itemized deductions include:

• Qualified interest, such as mortgage interest, student loan interest, and investment interest (if more than investment income)
• Qualified state and local taxes
• Losses to casualty or theft (if over 10% of AGI and over $500)
• Qualified charitable donations (if no more than 30% or 50% of AGI, depending on the donee)
• Medical expenses (over 7.5% of AGI)
• Impairment-related work expenses
• Estate taxes of decedent
• Losses from the sale of personal property
• Restoration of amounts under a claim of right
• Annuity losses, bond payments, and cooperative housing payments

When filing taxes, taxpayers have the option to choose between the standard deduction and itemized deductions. If the total amount of itemized deductions exceeds the standard deduction, the taxpayer should use the itemized deduction to reduce their tax liability.

For example, if a single taxpayer has a gross income of $80,000 in 2019 and elects to use the standard deduction, they can reduce their taxable income by $12,200 to $67,800. Their tax bill would be $8,091 with an effective tax rate (ETR) of 11.93%. However, if their itemized deductions add up to $14,000, their taxable income would be $66,000, and their tax bill would be $7,695 with an ETR of 11.66%. In this case, the taxpayer should use the itemized deduction because it saves them $396.

While itemized deductions can reduce a taxpayer's tax liability, they require meticulous record-keeping and are subject to more limitations than non-itemized deductions. For example, medical expenses can only be deducted if they exceed 7.5% of a taxpayer's AGI.

Overall, itemized deductions are a way for taxpayers to reduce their taxable income and lower their tax liability by claiming specific expenses recognized by the Internal Revenue Code.