How to Take Advantage of Miscellaneous Deductions

Work uniforms are one example of miscellaneous deductions.

Work uniforms are one example of miscellaneous deductions.

If you itemize deductions on your tax return, the Internal Revenue Service allows you to deduct expenses associated with owning a home, related to investments, medical expenses and other categories. The IRS groups deductions that don’t readily fall into any other category as miscellaneous deductions. These deductions must meet certain limits, but they can add up to reduce your tax bill.

2 Percent Limit

The total of certain miscellaneous deductions must be more than 2 percent of your adjusted gross income before you can deduct them – and you can only deduct the amount that exceeds 2 percent of your AGI. These include expenses you pay related to your job that your employer doesn’t reimburse, such as the cost of dues to professional organizations, depreciation on a home computer you use to do your job, business liability insurance, a passport if your job requires you to travel overseas, union dues, tools you use in your job, work uniforms and classes you take to improve your job skills. If you’re unemployed, job search expenses also fall into this category. Tax preparation fees, fees you pay to manage your investments and other expenses associated with managing investments such as magazine subscriptions or depreciation on a computer you use to keep track of your investments, and safety deposit box fees are other deductions that are subject to the 2-percent limit. Each individual deduction doesn’t have to meet the 2-percent rule – all of the deductions added together must exceed two percent of AGI.

Non-Limited Deductions

You can deduct other miscellaneous deductions without having to meet the 2-percent limit. These include gambling losses to offset gambling winnings, casualty or theft losses from investment property, losses from ponzi scheme investments, expenses disabled persons incur to make accommodations at work and estate taxes you pay on an inheritance.

Maximizing Deductions

Because you can only deduct the amount of some miscellaneous deductions, it’s best to bunch these deductions together, if possible. If you buy uniforms for work each year, make the purchases in January and December one year and don’t buy any in the next year, to maximize this deduction. You can also time professional dues, magazine subscriptions and tool purchases. Doing so will mean you have no or few miscellaneous deductions some years, but higher deductions in other years.

Record Keeping

You must be able to justify your deductions in case of an audit, so keep good records. For example, if you’re a gambler with wins you want to offset with losses, the IRS suggests you keep a diary and note each day’s wins and losses. Copies of tickets from table games and information about which slots you played are also useful in establishing losses. If you deduct depreciation for a computer, you can only deduct the percentage related to investments or business. If you also use the computer for personal matters, keep a log of the time you spend on the computer for each function. Keep receipts of all transactions related to miscellaneous expenses, such as credit card receipts and sales ticket.

 

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