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Don't Forget Miscellaneous Deductions!

By: Chuck Strauss

November 9, 2012

As fall turns to winter, this might be a good time to take a good look at your income and expenses, and get ready for the 2012 Tax Year, so that you can avoid paying unnecessary income taxes.

For example, here are some reminders about tax deductions you may be eligible for.  Tax deductions reduce the amount of your taxable income, and therefore generally reduce the amount of taxes you may have to pay.

Of course, the IRS provides a “Standard Deduction” which is available to every tax payer.  It is a relatively generous amount, depending on your filing status and number of dependents. However, it may be that Itemized Deductions would benefit you more than the Standard Deduction.  Itemized Deductions are reported on Schedule A of the IRS 1040 form, and you may be able to claim certain “Miscellaneous Deductions.”

There are two categories of Miscellaneous Deductions – those that are subject to a “2% rule” and those that are NOT subject to that rule.  This rule refers to an amount of money equal to two percent of your adjusted gross income – the figure on the very last line of the first page of your 1040 form.

Deductions subject to the 2% limit include:

  • Medical and dental expenses – note, however, that this category has its own percentage limit – that is, you can include only those expenses in excess of 7.5 percent of your adjusted gross income
  • 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.
  • Tax preparation fees.
  • Other expenses that you pay to:
    • Produce or collect taxable income
    • Manage, conserve, or maintain property held to produce taxable income
    • Determine, contest, pay, or claim a refund of any tax

Examples of other possible Miscellaneous Deductions subject to the 2% limit include certain investment fees and expenses, some legal fees, hobby expenses (that are not more than income from your hobby), and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects. 

The list of Miscellaneous Deductions not subject to the 2% limit 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.

Yes, it is early and you cannot file taxes for a couple months yet, but preparation always pays off. Make records of your Miscellaneous Deductions to make it easier for you to prepare your tax return when the filing season arrives.

We created a “Pre-Visit” checklist available HERE to help you get started. If you wish, you can also look at the IRS Publication 529 “Miscellaneous Deductions” by clicking HERE.