Hertsel Shadian, Attorney at Law, LLC

Don’t Overlook the Benefits of Miscellaneous Deductions

13 August 2012

The Internal Revenue Service recently sent out a reminder about the benefits of miscellaneous deductions, as well as some basic rules to remember in claiming miscellaneous deductions. For those taxpayers that are able to itemize their deductions on their tax return instead of claiming the standard deduction, they may be able to claim the benefits of certain miscellaneous deductions. Remember that a tax deduction reduces the amount of your taxable income and generally reduces the amount of taxes you may have to pay. Following are some things to know about miscellaneous tax deductions:

Deductions Which are Subject to a 2 Percent Limit. You can deduct the amount of certain miscellaneous expenses that exceed 2 percent of your adjusted gross income. Deductions subject to the 2 percent limit include:

  • Unreimbursed employee expenses, such as searching for a new job in the same profession, certain work clothes and uniforms, work tools, union dues, and work-related travel and transportation. To be deductible, the expenses must be:
    • Paid or incurred in the tax year,
    • Used for carrying on your trade or business of being an employee, and,
    • Considered ordinary and necessary.
  • Tax preparation fees.
  • Other expenses that you pay to:
    • Produce or collect taxable income,
    • Manage, conserve, or maintain property held to produce taxable income, or
    • Determine, contest, pay, or claim a refund of any tax.

Examples of other expenses include certain investment fees and expenses, some legal fees, hobby expenses that are not more than your hobby income, and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects.

Deductions Which are Not Subject to the 2 Percent Limit. The list of deductions not subject to the 2 percent limit of adjusted gross income includes:

  • Casualty and theft losses from income-producing property, such as damage or theft of stocks, bonds, gold, silver, vacant lots, and works of art.
  • Gambling losses up to the amount of gambling winnings.
  • Impairment-related work expenses of persons with disabilities.
  • Losses from Ponzi-type investment schemes.

Qualified miscellaneous deductions are reported on Schedule A, Itemized Deductions, which is available on the official IRS website along with Instructions for Schedule A. If you plan to utilize the benefits of these miscellaneous deductions, then it is important to remember that you also should keep complete and accurate records of your miscellaneous deductions to make it easier for you to prepare your tax return when the filing season arrives, as well as to be able to substantiate the deductions if your tax return ever is selected for examination by the IRS. In fact, review and substantiation of miscellaneous deductions is a frequent subject of IRS examinations. Note also that there are many expenses which you cannot deduct, such as personal living or family expenses.

For more information about the amounts and types of deductions which might be available in your specific situation, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. You also can find more information and examples in IRS Publication 529, Miscellaneous Deductions, which is available on the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others that might benefit from this information.

IRS Links:

  • Publication 529, Miscellaneous Deductions (PDF)
  • Schedule A, Itemized Deductions (PDF)
  • Instructions for Schedule A (PDF)

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