What are miscellaneous itemized deductions?
Miscellaneous itemized deductions are allowable only to the extent that they exceed 2% of your adjusted gross income (AGI), which is shown on page one of your return, Form 1040. Miscellaneous itemized deductions -- captured on Schedule A-- are broken down into several categories of deductions.
With the enactment of the Tax Cuts and Jobs Act of 2017, many of the following Schedule A itemized deductions which were previously subject to a 2% of adjusted gross income, can no longer be claimed (or are restricted), beginning 2018 through 2025. This means that anyone who claimed itemized deductions to reduce taxable income instead of taking the standard deduction in prior years may find it more beneficial to take the higher standard deduction, based on filing status, for 2018 through 2025.
Common miscellaneous itemized deductions include:
1) deductions for interest used in the production of income: For example, interest for money you borrowed to pay an attorney to collect a personal debt.
2) unreimbursed employee job expenses: This category includes courses you take to upgrade your job skills, seminars, vocational courses, refresher courses; professional books; work clothes; business travel that is unreimbursed; dues to a professional associations. None of these are deductible starting in 2018 and expiring 2025.
3) casualty and theft losses: Any losses not covered by insurance and subject to a 10% floor. This deduction is retained for tax years 2018 through 2025 but only for losses incurred in a federally declared disaster area.
4) gambling losses: To the extent of gambling winnings that you have reported as income on the same return. This was slightly modified for tax years 2018 through 2025.
5) safe deposit box rental. This deduction is gone for 2018 through 2025.
6) tax preparation fees: You can deduct your tax preparation fee or the cost of your tax preparation software, electronic filing fees and tax publications. These expenses are no longer deductible for 2018-2025.
7) union dues. These can no longer be deducted for 2018 through 2025.
8) investment expenses: fees paid for personal investing (i.e., advisory and management fees) are also gone for 2018-2025.
Many people do not have sufficient itemized deductions to reach a level that is higher than their standard deduction. Therefore, they are better off claiming the standard deduction.
Prior to the changes made by the 2017 Tax Cuts and Jobs Act, employee business expenses, which were included in miscellaneous itemized deductions, were a hot topic with the IRS as there has been a large amount of tax fraud associated with deductions for employee business expenses. For example, if you claimed business miles that your employer was also reimbursing, that would be tax fraud. Therefore, if you are taking deductions for employee business expenses it is critical to ensure that you have solid documentation for those expenses. Documentation would include a properly filled out mileage log, receipts for meals, travel, parking and tolls, and receipts for work clothing.