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Should I Itemize Deductions or Take the Standard Deduction? 
 
by kmhagen August 04, 2005

When To Itemize

Itemized deductions include the following:

  • Medical and dental expenses
  • State and local income taxes or sales taxes, real estate taxes, and personal property taxes
  • Interest on a home mortgage or interest on a loan used for investment purposes
  • Charitable contributions
  • Casualty and theft losses
  • Un-reimbursed employee expenses
  • Other miscellaneous deductions

If you had significant expenses in these categories, you may benefit from itemizing deductions, and you may want to go through the calculation to see which results in a lower tax – using the standard deduction or itemizing deductions.

Limitations

When you itemize deductions, you should keep in mind that the amounts you can claim are the amounts after any insurance or other reimbursement.  And there are certain limitations on some deductions.  For example:

  • You can claim an itemized deduction for your un-reimbursed medical and dental expenses only to the extent they exceed 7.5% of your adjusted gross income.  You may have had significant medical and dental expenses, but they may be offset by the limitation.
  • Un-reimbursed employee expenses and other miscellaneous expenses are generally subject to a 2% of adjusted gross income limit.
  • Also, if your adjusted gross income is over a certain amount, your overall itemized deductions may be limited.  This amount may be periodically changed (generally increasing year by year).  In the instructions for Schedule A, you can find a worksheet to calculate your allowable itemized deductions if you are subject to this overall limit.

Timing of Expenses

Aside from the rules described above for taxpayers who cannot take the standard deduction, and for married taxpayers filing separately, you can choose between the standard deduction and itemized deductions each year.  You may have more expenses in one year than in another.  Generally, it may be to your advantage to itemize in years when:

  • You have a large amount of uninsured medical and dental expenses.
  • You paid a significant amount of taxes or interest on your home (perhaps in the year you buy your home).
  • You paid an unusual amount of state sales tax (when you purchase a vehicle, for example).
  • You had uninsured casualty or theft losses (damage from a storm).
  • You made significant charitable contributions.
  • You had a large amount of un-reimbursed employee expenses (if you spent a significant amount looking for work, for example).

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