If you itemize, you can claim miscellaneous itemized deduction on Schedule A (Form 1040 or Form 1040NR). You must reduce their total by 2% of your adjusted gross income. In other words, you can claim the amount of expenses that is more than 2% of your adjusted gross income. In order to be deductible, they must be expenses that you pay to: 1) produce or collection income that is included in gross income, 2) manage, conserve or maintain property held for producing such income, or 3) determine, contest, pay or claim a refund of any tax.
Below are some of the most commonly overlooked miscellaneous itemized deductions, subject to the 2% limitation.
Appraisal Fees. Appraisal fees you pay to figure a casualty loss or the fair market value of donated property is deductible as a miscellaneous itemized deduction.
Casualty and Theft Losses. If you used the damaged or stolen property in performing services as an employee, you can deduct the casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit. Use Section B of Form 4684, Casualties and Thefts, to help calculate your deduction
Clerical Help and Office Rent. You can deduct clerical help, office rent and other office expenses that you have in connection with your investments and collecting taxable income on them.
Credit or Debit Card Convenience Fees. If you pay your income tax (including estimated tax payments) by credit or debit card, you can deduct the convenience fee charged by the card processor. Deduct the fees on the return for the year in which you paid them.
Depreciation on Home Computer. If you use your home computer to produce income (for example, to manage your investments that produce taxable income), you can deduct depreciation on it.
Excess Deductions of an Estate. The beneficiaries succeeding to an estate’s property can deduct any amount that the estate’s deduction in its last year exceed its gross income for that year. The estate’s personal exemption and charitable contributions should be excluded when figuring the estate’s total deductions. The beneficiaries can claim the deduction only for the tax year in which the estate terminates.
Fees to Collect Interest and Dividends. Fees you pay to a broker, bank, or agent to collect your taxable bond interest or dividends on shares of stock are deductible. You cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds, or to sell securities.
Hobby Expenses. You can generally deduct hobby expenses but only up to the amount of hobby income.
Indirect Deductions of Pass-Through Entities. Partners or shareholders of pass-through entities can deduct their share of pass-through deductions for investment expenses.
Investment Fees and Expenses. Investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income are deductible as miscellaneous itemized expenses, subject to the 2% limit.
Legal Expenses. Generally, you can deduct legal expenses that you pay in connection with the determination, collection, or refund of any tax. You can also usually deduct legal expenses that you incur in attempting to produce or collect taxable income. Other legal expenses that are generally deductible are those that are related to doing or keeping your job, for tax advice related to a divorce, to collect taxable alimony, or to resolve tax issues related to profit or loss from business.
Loss on IRA. If you have a loss on your traditional or Roth IRA investment, you can deduct the loss as a miscellaneous itemized deduction subject to the 2% limit, but only when the full account has been distributed and the total distributions are less than your unrecovered basis.
Repayments of Income. You may be able to deduct any amount you repay if it was included in income in an earlier year. If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit.
Repayments of Social Security Benefits. You may be able to take a miscellaneous itemized deduction subject to the 2% limit if the total of the amounts in box 5 (net benefits) of all your Forms SSA-1099, Social Security Benefit Statement,, and Forms RRB, Payments By the Railroad Retirement Board, is a negative figure. You can only deduct the part of the negative figure that you included in income in a previous year.
Safe Deposit Box Rent. If you use the safe deposit box to store taxable income-producing stocks, bonds, or investment-related papers and documents, you can deduct the box rent.
Service Charges on Dividend Reinvestment Plans. Service charges you pay as a subscriber in a dividend reinvestment plan are deductible as a miscellaneous itemized deduction subject to the 2% limitation.
Trustee’s Administrative Fees for IRA. Ordinary and necessary trustee’s administrative fees that are billed separately and paid by you in connection with your IRA are deductible as a miscellaneous itemized deduction subject to the 2% limitation.
The above is an overview of the most commonly overlooked miscellaneous itemized deductions, subject to the 2% limitation. Limitations and other restrictions do apply. Be sure to check with your income tax prepare before deducting these expenses.
Your tax preparer can provide you with more information regarding miscellaneous itemized deductions on your income tax return. StrataTax, a San Diego consulting and tax services firm, is available year-round to assist you with income tax preparation and tax planning. Call us at (858) 225-7720 to setup your free initial consultation or visit us at www.StrataTax.com for more information.
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