Nov 24, 2020 8:15:00 AM / by The Retirement Group (800) 900-5867
What Are They?
Other itemized deductions, also referred to as miscellaneous itemized deductions, include all deductible expenses not in the categories of medical and dental expenses, taxes, interest, charitable contributions, or casualty and theft losses. These deductions are claimed on Schedule A, Form 1040. Miscellaneous deductions fall into two categories: (1) fully deductible, or (2) deductible only to the extent that they total more than 2 percent of your adjusted gross income (AGI). For 2018 to 2025, the deduction for miscellaneous itemized deductions subject to the 2-percent floor is suspended. The IRS has also pronounced certain expenses to be nondeductible.
Tip: You must keep records to verify your deductions. Be sure to keep cancelled checks, receipts, bills, and other documentary evidence.
Caution: You are subject to a limit on certain itemized deductions if your adjusted gross income (AGI) exceeds $261,500 (in 2017) for single taxpayers, $313,800 (in 2017) for married taxpayers filing jointly, $156,900 (in 2017) for married taxpayers filing separately, and $287,650 (in 2017) for heads of households. For 2018 to 2025, this overall limit on itemized deductions is suspended.
Tip: See IRS Publication 529 for more information on miscellaneous itemized deductions.
Fully Deductible Expenses
According to the IRS, the following items are fully deductible:
- Amortizable premiums on taxable bonds — If you paid more for a bond than its face value, the difference is called a premium. Premiums can be amortized (deducted in installments over a number of years). Amortized premium deductions can be taken by offsetting investment income or as a miscellaneous itemized deduction.
- Casualty and theft losses from income-producing property — You can deduct casualty and theft losses without the 2 percent limitation if the property produced income (e.g., stocks, bonds, notes).
- Estate taxes imposed on income in respect of a decedent — You can deduct federal estate taxes paid on income that was due to a decedent but that you received as a beneficiary. You must also report the income on your tax return. See Publication 559 for more information.
- Gambling losses up to the amount of gambling winnings — You cannot report as income the net result of gambling winnings minus losses; you must report each separately in total. Losses in excess of winnings generally cannot be deducted.
- Repayments of income in excess of $3,000 — If you had to repay income you reported in a prior tax year, you can deduct the repayment as an itemized deduction, or you may be able to take a tax credit. The repayment must be related to income from a trade, business, or for-profit transaction (e.g., wages). See Publications 17 and 525 for more information.
- Special job-related expenses of persons with physical or mental disabilities — Impaired persons can deduct expenses incurred for items that help them to work, such as attendant-care services and hearing or reading aides.
- Unrecovered investment in an annuity — When a retiree receives annuity payments, a portion of the income is tax-free return of principal. If a retiree dies before recovering the entire cost of the annuity, the balance can be deducted on the retiree's final income tax return.
Subject to 2 Percent Floor (Deduction Suspended for 2018 To 2025)
For 2018 to 2025, the deduction for miscellaneous itemized deductions subject to the 2-percent floor is suspended. Some expenses are deductible only to the extent that they total more than 2 percent of your AGI. This is computed on Schedule A by subtracting 2 percent of AGI from total itemized deductions.
The 2 percent limit is deducted after any other limitations have been applied (e.g., the 50 percent limit on meals and entertainment expenses). Expenses subject to the 2 percent floor fall into three general categories: (1) unreimbursed employee expenses, (2) tax preparation fees, and (3) other expenses.
Unreimbursed Employee Expenses
You can deduct unreimbursed employee expenses if they are necessary for your job and are incurred or paid during the tax year.
These expenses include:
- Business bad debts — A business bad debt is a loss from a debt incurred for business reasons (e.g. loans to an employer).
- Business liability insurance premiums
- Damages paid to a former employee for breach of employment contract
- Depreciation on computers and cell phones — You can take depreciation on computers and cell phones if you use them for the convenience of your employer, or if the items are required for your work. If more than 50 percent of the item's usage is for business purposes, you can use the accelerated depreciation method, and you may also be able to take a Section 179 deduction. See publication 946 for more information on the Section 179 deduction. If the more than 50 percent test is not met, you must use the straight-line method of depreciation. There is an exception for home office computers (see Publication 587).
- Dues to Chambers of Commerce and professional societies — You can deduct dues to professional organizations if membership helps you perform the duties of your job.
- Education — Education expenses are deductible if they maintain or improve your job skills, or are required by your employer or the law. Qualified expenses include tuition, books, supplies, fees, and certain travel costs. See Publication 970 for more information.
- Educator expenses — If you're a teacher taking the $250 above-the-line deduction for educator expenses, you can take educator expenses that exceed the $250 limit as a miscellaneous itemized deduction.
- Home office expenses — You can deduct operating expenses and depreciation of your home if you use part of your home regularly and exclusively for business purposes. See Publication 587 for more information.
- Job search expenses — Job search expenses are deductible if you are looking for a new job in your chosen occupation, even if you don't find a new job. You can't deduct these expenses if you are changing occupations. Qualified expenses include job placement agency, resume costs, and travel expenses (see Publication 463).
- Lab breakage fees
- Licenses and regulatory fees
- Malpractice insurance premiums
- Medical examinations (if required by employer)
- Occupational taxes
- Passport for a business trip
- Repayments of employer income aid — Employer income aid is money you receive from your employer's private unemployment compensation plan. Your can deduct amounts you pay back if you reported the original payments in the current or prior tax year.
- Research expenses — If you are a college professor, you may deduct expenses to undertake research if necessary for your job. Qualified expenses include travel expenses to teach, write, lecture, and publish subjects in your field.
- Rural mail carrier's vehicle expenses
- Subscriptions to professional and trade magazines
- Tools and supplies — You can deduct the cost of tools if they will wear out and be thrown away within one year, otherwise you may be able to take depreciation on them (see Publication 946).
- Travel expenses (including transportation, entertainment, and gifts)
- Union dues and expenses
- Work clothes and uniforms — You can deduct the cost and upkeep of clothes if they're both a job requirement and unsuitable for everyday use.
Tax Preparation Fees
You can deduct tax preparation fees in the year they are paid. Expenses you can deduct include software programs and tax publications, as well as electronic filing fees (but not credit card usage fees).
This category generally includes expenses incurred to (1) collect income, (2) manage and maintain income-producing property, and (3) determine, contest, pay, or claim a refund of any tax. These expenses include:
- Appraisal fees for charitable donations and casualty losses
- Casualty and theft losses — See Publication 547.
- Clerical help and office rent if related to managing taxable investments
- Deductions of pass-through entities (e.g., partnerships, S corporations)
- Depreciation on home computers if used for investment activity
- Fees to collect interest and dividends
- Hobby expenses up to the amount of hobby income
- Investment fees and expenses
- Legal fees — You can deduct legal fees if related to producing or protecting income (e.g., collecting taxable alimony, representation at a tax audit, claiming a tax refund).
- Loss on IRAs after all amounts have been distributed to you
- Loss on deposits in financial institutions due to insolvency or bankruptcy
- Repayments of income of $3,000 or less, and repayments of Social Security benefits
- Safe deposit box rental
- Service charges on direct reinvestment plans
- Tax advice and preparation fees
- Trustee's administration fees for IRAs not deducted from your account
Nondeductible expenses are all those that fall outside the above two categories. The IRS has specifically stated that following items are nondeductible:
- Adoption expenses — You cannot deduct adoption expenses, however, you may be able to take an adoption tax credit
- Broker's commissions related to IRAs and investments
- Burial and funeral expenses
- Campaign expenses — If you ran for office, you cannot deduct any campaign expenses, including registration fees, even if you were running for reelection. Legal fees for actions relating to the campaign are also not deductible.
- Capital expenses
- Check-writing fees on personal accounts — If the account is personal, fees are not deductible even if the account earns interest.
- Club dues — Club dues, regardless of the club's purpose (e.g., social, sporting, business) are not deductible. There is an exception for certain business or public service organizations.
- Commuting expenses — Expenses to commute to and from work are not deductible, even if transporting tools or other work instruments.
- Fines and penalties for violating the law — Both civil and criminal fines and penalties are not deductible, including parking tickets and tax penalties.
- Fees and licenses
- Health spa expenses — Health spa expenses are not deductible even if you are required to stay in top physical condition for your job (e.g., law enforcement officers).
- Hobby expenses in excess of hobby income
- Home repairs, insurance, and rent
- Home security system — Installations of home security systems are not deductible. However, a portion may be deductible as a business expense if you have a home office.
- Illegal bribes and kickbacks
- Investment-related seminars — Costs to attend conferences or meetings for investment purposes are not deductible.
- Life insurance premiums — Life insurance premiums are not deductible. However, you may be able to deduct premiums as alimony for policies assigned to an ex-spouse.
- Lobbying expenses — Lobbying expenses, including dues and costs of research or planning, are not deductible.
- Loss from sale of home and personal property
- Lost or misplaced cash and property — Property can't be deducted if simply mislaid. However, the loss may qualify as a casualty in certain circumstances.
- Lunches with coworkers — Lunches with coworkers are not deductible unless you were away from home on business.
- Meals while working late — Meals while working late are not deductible unless you were away from home on business.
- Medical expenses as business expenses
- Personal disability insurance premiums
- Personal legal expenses — Legal expenses are not deductible if incurred for personal matters (divorce and custody actions, estate planning, real estate transactions).
- Personal, living, and family expenses
- Political contributions — Contributions to political candidates and campaigns are not deductible including admissions to dinners and programs.
- Professional accreditation fees
- Profession reputation — Expenses to promote your professional reputation cannot be deducted including advertisements and personal appearances.
- Relief fund contributions — Contributions to private plans that pay ill or injured employees who can't work are not deductible.
- Residential telephone service — The first line for telephone service to your home can't be deducted even if used for business purposes.
- Stockholder meeting attendance expenses — Expenses incurred to attend a stockholder's meeting are nondeductible if stock ownership is your only interest in the company, even if you are attending for investment purposes.
- Tax-exempt income — costs relating to tax-exempt income (e.g., debt to buy tax-exempt securities) cannot be deducted.
- Wages not received and lost vacation time
- Travel expenses for another individual — You can't deduct travel expenses for a companion on business trips.
- Voluntary unemployment benefit fund contributions — Contributions to private or union unemployment funds are not deductible. However, you can deduct taxes for unemployment insurance mandated by the state.
- Wristwatches — You can't deduct the cost of a watch even if you need it to do your job.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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