You should complete the Deductions and Adjustments Worksheet if you want to decrease the amount of your tax withholding (increase your allowances) because you are planning to itemize deductions instead of taking the standard deduction, you plan to have adjustments that will decrease your taxable income, or you plan to be able to claim tax credits that will directly reduce your income taxes. In order to be able to complete this worksheet, you will need to be able to reasonably estimate the amount of your itemized deductions, adjustments to income, and credits.
On line 1 of this worksheet you would enter your total estimated itemized deductions for the year. These would be the deductions you would take on Schedule A of Form 1040. Some of the types of itemized deductions you may be able to claim are included in the description for this line (medical expenses in excess of 7.5% of your AGI, state and local taxes, mortgage interest, charitable contributions).
Miscellaneous itemized deductions include some expenses that are deductible to the extent they exceed 2% of your AGI. These include unreimbursed employee business expenses and certain expenses of managing your investments. Other types of miscellaneous expenses are fully deductible. These include impairment-related work expenses of persons with disabilities, casualty and theft losses from income-producing property, unrecovered investment in an annuity contract in which payments cease because of the annuitant’s death, federal estate tax paid on income received in respect of a decedent, repayments of more than $3,000 under claims of rights when you had previously included those amounts in taxable income, and gambling losses up to the amount of any gambling winnings you report.
Your total itemized deductions may also be subject to a limitation if your expected adjusted gross income is over a certain amount. This dollar-amount limit generally changes each year and is indicated in the description for line 1 on the worksheet. Therefore, in order to accurately estimate the amount of your itemized deductions, you will also need to be able to estimate your AGI, in order to determine the amount of medical expenses that exceed 7.5% of your AGI, the miscellaneous itemized deductions that exceed 2% of your AGI, and to determine whether your total itemized deductions are subject to limitation based on your AGI.