This is part twelve in our series on Itemized Deductions. To read the rest of the series, click here. For additional information regarding 2014 tax planning, you can download our 2014 Tax Planning Guide from the Resources tab on our website.
We’re almost done with our series on itemized deductions. The final sections we’ll cover relate to job expenses and miscellaneous deductions.
First, let’s discuss the floor for these items. To be deductible, the total must exceed 2% of your adjusted gross income. So, if your total 2014 income is $100,000, only those expenses exceeding the $2,000 floor would be deductible. A few expenses are not subject to the 2% floor—examples include gambling losses, casualty and theft losses from income properties and estate tax with respect to a decedent, to name a few. Candidly, unless someone has significant job-related or investment expenses, most people simply do not have enough expenses to exceed the floor and qualify for a deduction.
Common deductions subject to the 2% limitation include:
- Job-hunting expenses
- Unreimbursed employee expenses
- Work clothes/uniforms
- Professional dues
- Job-related subscriptions
- Investment fees
- Tax return preparation fees
- Safe deposit box fees
Job-related expenses are reported on Form 2106 with the total carried to Federal Schedule A.
Finally, let’s discuss other miscellaneous itemized deductions as reported on line 28. The two most common deductions reported here are gambling losses and casualty and theft losses from income-producing property.
Earlier, we mentioned gambling expenses as not being subject to the 2% floor. Gambling losses are limited and only deductible up to the amount of gambling winnings. Rules are different for professional gamblers, and going to the casino on the weekends does not count.
If you are losing or are limited on deducting miscellaneous items, investigate if it would be possible to handle these things another way. For example, an auto allowance is taxable, included on your W-2 and subject to payroll taxes. The employee deduction is taken as a miscellaneous deduction and most likely limited. However, if your employer reimburses you for mileage (or other job expenses) the payments would not be taxable to you.
This series is intended to cover the most common deductions. Please keep in mind that there are always exceptions; what’s more, your situation is your own and different from anyone else’s. I recommend that you consult with your tax advisor before taking any action. But I hope this summary will help give you the knowledge you need to make the most of that consultation and then make smart money decisions moving forward.