Are you scraping the bottom of the barrel of your itemized deductions? The IRS allows you to deduct a mixture of expenses that don’t fit neatly into any other basket. They’re called, appropriately enough, “miscellaneous expenses.” But you can’t just lump these expenses together and write off the full amount on your return.
After you add up all your miscellaneous expenses, you can deduct only the excess above 2 percent of your adjusted gross income (AGI) for the year.
For instance, let’s say your annual AGI is $100,000 and you incur $1,900 of miscellaneous expenses during the year. In this case, your deduction is zero because you don’t clear the tax law threshold. On the other hand, if you have $2,500 in miscellaneous expenses, you’re entitled to deduct $500.
Which expenses are deductible? The list is a long one and it’s a hodgepodge. However, miscellaneous expenses can generally be divided into two main groups: unreimbursed employee business expenses and production-of-income expenses.
- Unreimbursed employee business expenses.
These are job-related expenses that you pay out of your own pocket. Some common examples are as follows:
- Cellphones and home computers when required as a condition of employment.
- Dues for a professional organization.
- Education related to employment.
- Home-office expenses (subject to business-use limits).
- Licenses and regulatory fees.
- Malpractice insurance premiums.
- Subscriptions to professional journals and magazines.
- Travel and entertainment for your business (limited to 50 percent for meals).
- Union dues.
- Work clothes or uniforms.
You can also deduct the cost of seeking employment – for example, printing out resumes and fees for an employment agency – whether or not you actually get a job.
- Production-of-income expenses. This category covers the cost of various investment, financial, and tax services. It includes the following common examples:
- Accounting fees.
- Appraisal fees for charitable donations of property and casualties.
- Custodial fees for IRAs.
- Investment and financial planning fees.
- Legal fees.
- Safe deposit rentals for storing non-tax-exempt securities.
- Subscriptions to financial planning magazines and journals.
- Tax assistance fees.
The cost of having your tax return prepared, as well as obtaining professional advice relating to tax matters, both count as miscellaneous expenses.
It’s easy for some of these random expenses to fall through the cracks. You are advised to scour your records – and check things twice – before your return is filed. Just one or two extra items could put you over the 2 percent-of-AGI threshold or increase an existing deduction.