Though the majority of tax filers claim the standard deduction on their returns, a good 30% of households choose to itemize instead. Itemizing deductions allows you to lower your tax bill by exempting a portion of your income from taxes. The value of your deductions is tied to your effective tax rate.
Say you’re eligible for $20,000 in deductions and your effective tax rate is 25%. By excluding $20,000 of income from taxes, you’ll save yourself $5,000.