A few expense categories come to mind when tax filers first think of itemized deductions. Home mortgage interest is usually at the top of the list. Real estate tax and charitable contributions are often remembered next. Many Individuals can also claim one or more lesser known deductions referred to as miscellaneous itemized deductions.
There are two categories of miscellaneous itemized deductions. One category includes a wide range of personal expenses incurred to produce current income, such as job expenses. The other category includes a more arbitrary list of personal expenses that are deductible. Another difference is that one of the categories is only partially deductible.
Miscellaneous deductions subject to threshold
Your personal expenses of producing income are generally deductible to the extent they exceed 2 percent of the entry on your tax return labeled as adjusted gross income (AGI). Job expenses may include the cost of work uniforms, as long as the garments are not characteristic of typical street wear. The expense of uniform cleaning is also deductible.
For some employees, the unreimbursed cost of work-related travel far exceeds the 2 percent threshold. The cost of daily commuting is not deductible. However, travel expenses are generally deductible if a job assignment necessitates a rest period at a distant location. Calculate the exact deduction for your unreimbursed travel expenses on IRS Form 2106.
The itemized deduction for travel expenses is applicable to temporary assignments expected to last one year or less. If the work assignment is expected to last a year or more, it is considered indefinite and the personal expenses are generally not deductible. Before embarking on out-of-town work as an employee, be sure to clarify the expected duration of the project.
Miscellaneous deductions fully deductible
Certain personal expenses can be claimed in full as a miscellaneous itemized deduction. Gambling losses are deductible to the extent of gambling winnings. Gambling winnings are reported elsewhere on the tax return as income. Include all your gambling losses as an itemized deduction, up to the amount of winnings reported separately as income.
If a person who owns an investment annuity dies before recovering their cost basis in the annuity, the unrecovered portion of the cost is deductible on their final return. A somewhat similar situation applies if you have an overall loss on your IRAs after the accounts have all been distributed. The net IRA loss becomes a miscellaneous itemized deduction.
Certain expenses are explicitly not deductible, including funerals and personal insurance. The cost of attending an investment seminar or a stockholders meeting is also not deductible. Contact an accountant for more information about the various types of itemized deductions.
Contact a law office like Alexander & Associates CPA for more information and assistance.