Don't Overlook the Benefits of Miscellaneous Deductions
If you are one of the millions of Americans that are able to itemize deductions on your tax return instead of claiming the standard deduction, don't overlook the value that could come your way if you can claim certain miscellaneous deductions when you file your return.
Many may overlook these deductions because they seem small. But sometimes they can add up to nice tax savings.
There are basically two types of miscellaneous tax deductions.
First, are deductions that are subject to the "2 percent limit". These are deductions that you can only take to the extent that their sum total exceeds 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.
- 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.
Speaking of investment fees, here's a little tip. If you incur investment or account related fees related to your IRA, arrange to pay those fees from another taxable account rather then have them withdrawn from the IRA.
By doing so, you leave more money in your IRA to grow tax deferred (or tax free in the case of a Roth IRA). Further, paying this way allows you to claim the fees as a miscellaneous itemized deduction, something you cannot do if they are paid out of the IRA account itself.
The second type of miscellaneous deductions are deductions that 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 at the bottom of Schedule A, Itemized Deductions and are added to your other itemized deductions.
Keeping good records of your miscellaneous deductions is essential to making it easier for you to prepare your tax return when the times comes, as well as proving your deductions to the IRS should you need to do so.
You can find more information about miscellaneous itemized deductions, including examples, in IRS Publication 529, Miscellaneous Deductions, available from the IRS for download at www.IRS.gov.
