Choosing the Larger Deduction

• The IRS doesn’t require you to itemize, even if it will save you more in tax. Moreover, itemizing in one tax year doesn’t obligate you to itemize in the next. Compare the standard deduction for your filing status with the total of your itemized expenses each year, then choose whichever is larger. For example, if you're eligible to claim an $8,500 standard deduction you should only choose to itemize if your deductible expenses are more than $8,500. However, some of the expenses you're eligible to itemize may not be 100 percent deductible due to the various adjusted gross income (AGI) limitations the IRS imposes.
  
  

Miscellaneous AGI Limitations

• Some of the miscellaneous expenses that you itemize are subject to a 2 percent AGI floor. You must add together all expenses within certain categories, then reduce the total by 2 percent of your AGI to arrive at the deductible amount. This includes job-related expenses for which your employer doesn’t reimburse you, such as union dues, business travel, home office expenses and job-search costs. The limitation also applies to expenses you incur to produce non-employment income, such as investment fees and the cost of obtaining tax and accounting consultations.
  
  

Limitation on Medical Expenses

• A substantial 7.5 percent AGI limitation applies to all medical and dental expenses you itemize. Apply this limitation as you did your miscellaneous expenses, by adding together all medical and dental expenses, then reducing the total by 7.5 percent of your AGI. For example, if your AGI is $100,000, the first $7,500 of medical and dental expenses you report are not deductible.
  
  

Tax Forms

• You must file Schedule A when you claim itemized deductions on your tax return. When reporting your itemized expenses, do so in the appropriate section of the form. If you don’t, you run the risk of applying an AGI limitation to an expense that's fully deductible. For example, the appropriate section for claiming your cash and property donations is in “Gifts to Charity.” If you suffer a casualty loss, include the deduction as a miscellaneous expense, but not within the category that's subject to the 2 percent AGI limitation. Rather, report it under the “Other Miscellaneous Deductions” category. Also, you must prepare your tax return on Form 1040 if you itemize. If you use the 1040A or 1040EZ forms, you can't file a Schedule A.