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Miscellaneous Expenses: All the Deductions That Don't Fit
Most income tax deductions on your return, such as charitable donations or medical expenses, are easily recognized. However, there is a hodgepodge of deductible expenses that do not fall neatly into a single category. The IRS calls them "miscellaneous" itemized expenses.
Miscellaneous expenses are generally not big-ticket items-although there are several key exceptions-but they can add up into a sizeable deduction at tax return time. There is, however, one catch: Your annual deduction is limited to the excess above 2% of your adjusted gross income (AGI) for the year. For instance, suppose that your AGI for 2005 is $100,000 and you incur $1,800 in miscellaneous expenses during the year. In that case, your deduction is zero. If you have $2,500 in miscellaneous expenses, your deduction is limited to $500.
Although there are a few "stray" deductions, most miscellaneous expenses are attributable to the production-of-income or employee business costs.
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 is not 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 that the cost of having your tax return prepared by a professional is deductible as a miscellaneous expense.
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; cellular 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, employment agency fees and resume services-is deductible as a miscellaneous expense, even if you don't end up with the job.
Note: There are several exceptions to these general rules, so be sure to obtain expert tax assistance with respect to your personal situation. Reminder: This cost is deductible as a miscellaneous expense in and of itself.