Pitfalls of itemizing deductions

1. To use medical expenses, they have to be more than 7.5% of your adjusted gross income. That is the last line on page one of your Form 1040 (the long form).

2. To deduct employee business expenses, investment expenses and other miscellaneous expenses, they must be more than 2% of your AGI.

3. Your itemized deductions should be more than your standard deduction before you use one dime of expenses (in 2008, that's $10,900 for couples, $5,450 singles and $8,000 for head-of-household filers).

4. As your income reaches $159,950 ($79,975 for married-filing-separately), your itemized deductions face a phase-out.

5. Even if you manage to jump over the first four pits, you may fall prey to the alternative minimum tax, and find most of your deductions aren't worth a thing.

Who can still itemize

Looking at all these things that stop you from being able to itemize, you may wonder who in the world can use a Schedule A? These days, pretty much the only taxpayers who can itemize are those who have mortgages with high balances, those whose incomes are in the high six figures or above, with a heavy state tax burden, or the very ill, with no medical insurance.

After all, if you refinanced two years ago into a $150,000 mortgage with a 5% interest rate, your mortgage interest is less than $7,500. With property taxes of $2,500, and auto registration fees of $500, a married couple is still under the standard deduction threshold.

Plus, for 2008, taxpayers can take an additional standard deduction based on state or local real-estate taxes paid, up to $500 for single and $1,000 for married-filing-jointly filers, or one for net disaster losses suffered from a federally declared disaster.

Next year, even fewer taxpayers will need to itemize, since they will be able to take deductions or credits that are available to people who pay education expenses, buy new cars and/or have children.

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent - Direct phone # 720-234-1177