Most tax-deductible expenses fall into a specific category. For instance, you can usually claim mortgage interest and charitable contributions as itemized deductions on Schedule A of your Form 1040. But there’s a large hodgepodge of other expenses that don’t fit snugly into a single category. Depending on your situation, you may be able to deduct a portion of these “miscellaneous expenses” on your 2016 tax return. But there’s a tax hurdle to overcome.
The miscellaneous deduction hurdle. Generally, you may deduct only the excess of unreimbursed miscellaneous expenses above 2% of your adjusted gross income (AGI). For simplicity, let’s say your AGI for 2016 is $100,000. If you pay $2,500 in miscellaneous expenses out-of-pocket, the deduction on your 2016 return is limited to $500. This is the excess over 2% of your income. Conversely, if your miscellaneous expenses totaled $1,500 for the year, you get no deduction.
Common miscellaneous deductions. Although the expenses available for the deduction are an eclectic mix, they can generally be broken down into employee business expenses, investment and financial advisory fees, and other expenses.
Employee business expenses. The list of employee business expenses is long and ranges from business meetings, meal expense, dues for professional societies, to passports required for foreign business travel. Be aware that the deduction for entertainment and meals is limited to 50% of the cost. Much of the expense here must be unreimbursed from your employer. Be prepared to defend your employer’s policy of non-reimbursement.
Investment and financial advisory fees. Miscellaneous investment and financial advisory fees is a long one and includes the cost of appraisals of property contributed to charity, subscriptions to investment magazines, and even tax assistance and tax return preparation fees.
Other expenses. There are other deductions as well. There is even a small group of miscellaneous expenses that are deductible without regard to the 2%-of-AGI floor. This includes gambling losses up to the amount of your winnings if you’ve kept the proper records.
It’s easy to miss miscellaneous expenses that can add to your total tax deduction. If you are not sure if an item is deductible, save the receipts and proof of payment. A quick review of your records might find you qualify for the deduction. Please give us a call if you have questions.