You know the general rule about itemized deductions: Compare your total allowable expenses against your standard deduction, and use the amount that provides the greatest tax benefit.
Illustration. Itemizing may reduce your 2007 tax bill if you're under age 65, married filing jointly, and your qualifying deductions are greater than the basic standard deduction of $10,700 ($5,350 for single filers).
Here are three other facts about itemizing you may be less familiar with.
1. There's a special rule when you're married and file separate returns.
If either of you itemizes, the other's standard deduction amount is usually considered to be zero. When this situation applies, you'll generally be better off itemizing no matter the amount of your allowable expenses.
2. Your itemized deductions may be limited.
For instance, unreimbursed medical expenses are deductible only if the amount you spent exceeds 7.5% of your adjusted gross income (AGI). Miscellaneous deductions such as certain legal fees must equal more than 2% of AGI to be deductible.
In addition, once your AGI reaches $156,400, the total amount of your itemized deductions is reduced.
3. You can itemize even though your standard deduction is higher.
Why would you want to? One reason: The standard deduction isn't considered in the computation of the alternative minimum tax (AMT), but some itemized deductions are.
If you're subject to the AMT, in certain cases your overall tax liability may be less if you choose to itemize.
Other rules may apply to your situation. For help with the calculations or with any of your tax filing concerns, give us a call.
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