Get the most out of itemizing on taxes

By Jeff Schnepper

Itemizing is an incredibly easy concept to understand, but the strategies behind it can be complex and myriad. The rule for when to itemize is simple -- you do it if the total of your itemized deductions is greater than your standard deduction.

Your tax is based on your "taxable income." That's your total income after you've subtracted above-the-line deductions like your Individual Retirement Account or other qualified retirement-plan contributions, moving expenses or alimony payments, plus your personal exemption and either:

• Your standard deduction or

• Your itemized deductions.

Your itemized deductions are sometimes referred to as "below-the-line" deductions. (Your "adjusted gross income" is "the line.") Clearly, the more you can deduct, the less in tax you have to pay.

Here are the standard deductions that apply to your 2007 taxes:

Standard deductions for 2007

Filing Status	Amount
Married filing jointly	$10,700
Singles	$5,350
Heads of households	$7,850
Married couples filing separately	$5,350

Here are the standard deductions that apply to your 2008 taxes:

Standard deductions for 2008

Filing Status	Amount
Married filing jointly	$10,900
Singles	$5,450
Heads of households	$8,000
Married couples filing separately	$5,450

Some taxpayers must itemize, even if their deductions are less than the standard deduction. You must itemize your deductions if:

• You are married, filing separately, and your spouse itemizes.

• You are a U.S. citizen who can exclude income from U.S. possessions.

• You are a nonresident or dual-status alien.

• You file a short-period return because of a change in your accounting period.

There are five main categories of itemized expenses that you can deduct on your taxes:

• Medical and dental expenses.

• Taxes. These include state and local income taxes, property taxes on real estate, intangible taxes (on the value of stocks and bonds you own) and on personal property taxes on such things as cars. In 2007, as in 2006, you can deduct either your state income taxes or your state sales taxes but NOT both. (Congress has not yet decided whether to extend this break for 2008 and beyond.)

• Interest expenses. For most people, these are limited to home mortgage interest, points (interest that's prepaid to buy a home), and some interest on investments and education expenses. For most taxpayers, the mortgage deduction is what lets them itemize. If you take out a 30-year, $140,000 mortgage at 6%, you will generate about $8,350 in deductible interest in the first year.

• Charitable contributions.

• Casualty and theft losses.

The key, then, is to maximize the value of your itemized deductions. Here's where planning can put dollars in your pocket.

Dealing with the floors

Some itemized deductions -- including medical expenses or miscellaneous deductions such as investment expenses, safe deposit fees, professional education, employee job-hunting expenses and tax-preparation fees -- are not allowed until they exceed a certain "floor" amount.

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