Tax breaks that can fall through the cracks
As the start of another tax filing season dawns, you may be looking to increase the itemized deductions you can use to offset highly taxed ordinary income. What about those random expenses that often seem to fall through the cracks? If you qualify, you may be able to deduct a portion of your miscellaneous itemized expenses on your 2014 tax return.
Background: Miscellaneous expenses are generally not big-ticket items (with certain key exceptions), but they can add up into a sizable deduction at tax return time. The deduction is limited to the excess above 2% of your adjusted gross income (AGI). For instance, if your AGI for 2014 is $100,000 and you incurred $1,975 of miscellaneous expenses, your deduction is zero because you don’t clear the 2%-of-AGI mark of $2,000.
Miscellaneous expenses are often referred to as a hodgepodge of deductible expenses. However, they are generally attributable to one of two categories: production-of-income expenses or employee business expenses.
1. Production-of-income expenses. This group includes expenses related to the production of income through investments, financial planning, retirement planning and tax assistance. Although this list isn’t all-inclusive, some common examples are safe deposit rentals to store non-tax-exempt securities; accounting fees and legal fees to produce or preserve income; custodial fees for income-producing property and IRAs; fees paid to collect interest or dividends; hobby expenses (up to the amount of hobby income); fees for investment and tax counsel; appraisal fees for charitable contributions and casualty losses; and the cost of services, periodicals, manuals and other materials related to tax assistance. Note: The cost of having your tax return prepared by a professional is deductible as a miscellaneous expense.
2. Employee business expenses. The other main group of miscellaneous expenses consists of unreimbursed employee business expenses. It includes such expenses as dues paid to professional societies; union dues; employment-related education; malpractice insurance premiums; qualified home office expenses; subscriptions to professional journals and magazines; work clothes or uniforms; cell phones and home computers (when required as a condition of employment); and qualified travel and entertainment expenses (but only 50% of entertainment costs are eligible for the deduction).
Furthermore, the cost of seeking employment—for example, payment for employment agency fees and résumé services—is deductible as a miscellaneous expense, even if you don’t end up with a job.
As is usually the case with taxes, there are several exceptions to these general rules, so it is recommended that you obtain expert tax advice. Reminder: The cost of tax assistance itself is deductible as a miscellaneous expense subject to the 2%-of-AGI limit.