Should You Itemize Or Not?

The standard deduction for 2006 for a single individual under the age of 65 is $8,450 and is $9,700 for single individuals over the age of 65. The standard deduction differs depending on age, filing status, and dependents - be sure to check out the IRS website for the latest info.

Below is a list of several expenses that can be included as an itemized expense. Included in the list is the threshold that must be met in order to include the deduction. Typically, there are 2 types of thresholds: ceilings and floors.

A ceiling means the total expense you can deduct is subject to limitation. For example, charitable contributions can be only be deducted up to 50% of your adjusted gross income (AGI).

A floor means that you must incur a certain amount of non-deductible expenses before you are able to deduct the rest of your expenses. For example, medical expenses can only be deducted after they reach 7.5% of your total AGI.

The following is a list of expenses that are itemized (type of threshold) and limitations:

• Medical Expenses (floor) Costs over 7.5% of your AGI


• Home Mortgage Interest (ceiling) Interest on up to $1,000,000 of principal debt


• Home equity interest (ceiling) Interest on up to $100,000 of principal debt


• Investment Interest (ceiling) Interest up to amount of net investment income


• Charitable Contributions (ceiling) up to 50% of your AGI


• Charitable Contributions - long term property (ceiling) 30% of AGI


• Casualty and theft losses (floor) Costs over 10% of AGI


• Miscellaneous deductions (floor) Costs over 2% of AGI

Total of itemized deductions (ceiling) Total deductions are reduced by 3% of AGI in excess of $150,500

If it is beneficial to itemize your deductions, it is done so on a Schedule A (Form 1040) form.

Both deductions help reduce your tax liability, however, always choose the one that will reduce your tax liability the most and save you money!