Posted on March 17, 2006 at 07:18:27:
Almost every deduction on your tax return is worthwhile, but some are worth more than others. The most valuable are those entered “above the line,” those that reduce adjusted gross income.
Many deductions have a “floor” derived from the AGI. Medical expenses, for instance, are deductible insofar as they exceed 7.5 percent of the AGI. Casualty losses, outside of special situations, are deductible where they exceed 10 percent of AGI, and miscellaneous expenses have a floor of 2 percent. So every $1,000 deducted above the line saves $75, $100 or $20 on such deductions. In addition, personal exemptions are tied to AGI, as are other items on your return. Above-the-line deductions include IRA and other retirement plan contributions, student loan interest, health-insurance costs for the self-employed, and such.
Better than any deductions, of course, are credits that cut taxes directly, dollar for dollar. Use them where you can.