The most basic tax question: To itemize or not to itemize?

By Eileen AJ Connelly AP Personal Finance Writer NEW YORK (AP) -- The most basic question many taxpayers face when filling out their returns is whether to itemize or claim the standard deduction. It's not always an easy question to answer. If your financial life is uncomplicated -- no dependents, no mortgage, few work-related or medical expenses and few charitable donations -- in most cases you can fill out the simplest tax return form. That's the one-page 1040EZ form, which can be completed in little time. But once life starts getting more involved, so do tax returns. If you have a child, buy a house, sell an investment or spend money trying to find a new job, it all may translate into more information to enter on your tax return. When filling out tax forms, about two-thirds of taxpayers claim a standard deduction, which is a dollar figure that reduces the amount of their taxable income. For single people, or married people filing separate tax returns, the standard deduction for 2011 federal taxes is $5,800. For a married couple filing a joint return, it's $11,600. Taxpayers who are older than 65 or blind, or those who claim "head of household" status, get a higher standard deduction. But if you own a home, have work-related expenses that were not reimbursed by your employer, gave large donations to charity or met other conditions, you might be leaving money on the table if you don't itemize your deductions. The only way to be sure is to calculate the total you can deduct. If the itemized total is greater than what you could claim as a standard deduction, it's worth the time to fill out a few more forms. It's sometimes easy to determine the best course. A homeowner with an average mortgage of $190,500, at a modest 5 percent interest rate, for instance, is paying upwards of $700 per month, or $8,400 per year, in interest. That means the interest alone is greater than the standard deduction for a single person. Add in $2,000 per year in property taxes and the total nears the married filing jointly standard deduction, even before considering other items that could be claimed. Higher property taxes, a few charitable donations, some business-related expenses, state and local income taxes and big medical bills can easily push the tally to exceed the standard deduction for couples. "You definitely want to run the numbers," said Jackie Perlman, a principal researcher with the H&R Block Tax Institute. And there's good news for taxpayers who file online. Typically software will determine if it's best for you to itemize. After answering a few questions, the calculation is done automatically, which makes it much harder to miss out on deductions that could reduce your tax bill or increase your refund. Residents of states with high income taxes or taxes on property like automobiles, and people who donate a lot to charity are among those who are likely to benefit from itemizing. "Don't rule it out, even if you don't own a home. That's a big mistake," Perlman said. "You may be very surprised to find out that itemizing is worthwhile after all." Tax law states that when one spouse itemizes, the other must do so as well. In such a case, deductions like mortgage interest may be claimed by only one member of the couple. Such issues also come up when couples are divorcing, Perlman said. But it's still worth trying things out with both options before making a decision. Published: Mon, Feb 27, 2012