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I am confused about tax deductions. A friend tells me it is always better to itemize, but Ithought you had to use either your allowable deduction OR your itemized deductions, whichever waslarger. Can you use both? Thanks, S.B.

You cannot use both. You must either choose to itemize your deductions or take the standarddeduction, which is a flat amount based on your filing status. In most instances, you shoulddeduct whichever is higher.

Remember, that deduction is subtracted from your adjusted gross income, or AGI, to determine yourtaxable income. And your taxable income is the figure used to calculate your final tax bill. Clearly, you want to get your taxable income as low as possible.

So do some legwork. You can throw all your info into a tax-preparation program like TaxCut orTurboTax or check out this quick

calculator to determinewhich deduction saves you the most tax dollars.

But just to give you an idea, if you're single, the standard deduction on your 2006 returnwill be $5,150. Married-filing-jointly folks will get a $10,300 deduction. If you file as head ofhousehold, your standard deduction will be $7,550.

That may sound like a ton of money, but it's surprising how quickly your itemizeddeductions can add up and surpass that standard deduction.

So go to your tax-prep program and drop in your state and local income taxes, vehicle-registration taxes and real estate taxes paid during the year. Then input your home mortgageinterest and any points paid on a refinancing.

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Next, add up your charitable contributions.

If you have a ton of medical expenses, tally them up, too. Granted, your medical expenses arelimited to 7.5% of your AGI. That means that only the unreimbursed medical expenses above 7.5% ofyour AGI are deductible. So if your AGI is $100,000, only the medical expenses that exceed $7,500will be deductible. But if you have a ton, then it's worth it.

Same goes for your miscellaneous deductions. They are limited to 2% of your AGI. So in ourexample, only the expenses that exceed $2,000 are deductible. But they add up fast, so include any costs that pertain to your investment accounts, like cell-phone calls made to yourbroker or advisor.

If you have a safe-deposit box for your investments, you may be able to deductthe cost of the box as a miscellaneous itemized deduction. Don't forget tax-preparation fees,job-hunting expenses and the costs of subscriptions to professional journals that are notreimbursed by your employer.

So determine which deduction will get your tax bill down. And know that you can use the standard deduction in one year and your itemized deductions in the next if that benefits you.

Oh, and a big note: If you choose to itemize, be sure you have receipts and documentation for allthe deductions you report.

Good luck!

Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;

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