DEDUCING TAX DEDUCTIONS
Lori Z. Bahnmueller
Michigan Credit Union League - Your Money matters
PLYMOUTH, Mich., March, 1999 — If you’re like many people who prepare their own taxes, your hand might shake a little when pencilling in miscellaneous itemized deductions. Sure, it seems prudent and worthy of a business expense. But are you sure — really, sure?
Miscellaneous itemized deductions fall into one of three broad categories — unreimbursed employee business expenses, expenses related to your investments, and tax-related expenses — but cover everything from safe deposit box rentals to work uniforms to tax preparation software. Given the sweeping range of prudent deductions and one’s natural aversion to being audited, the following Q&A with Gwen McCrae of the Michigan Association of Certified Public Accountants might prove a good read for those whose deductions merit further discern.
How do I claim miscellaneous itemized deductions?
You may write off miscellaneous itemized deductions only if you itemize. Generally, you may claim that portion of your miscellaneous itemized deductions that exceeds 2 percent of your adjusted gross income (AGI).
For example, if your 1998 AGI is $80,000, you may deduct only those miscellaneous deductions that exceed $1,600 ($80,000 X .02). You figure your deduction on Schedule A by subtracting 2 percent of your AGI from the total amount of your miscellaneous itemized deductions.
May I deduct the cost of education related to my job?
You may deduct expenses if the education is either required by your employer, or the law, to maintain your current position and status or maintains or improves skills required in your present work. If your education meets these requirements, you can deduct expenses for tuition, books, supplies, laboratory fees and similar items. You, however, are not permitted to deduct expenses that enable you to meet the minimum requirements of your profession, nor can you deduct education expenses that qualify you for a new line of work.
May I deduct the cost of my required uniforms?
The cost and upkeep of work clothes is deductible if you must wear the clothes as a condition of your employment and if the clothes are not suitable for everyday wear. Firefighters, postal carriers, health care workers, professional athletes, and delivery workers can generally deduct the cost of work clothes. Workers may also deduct the cost of necessary protective clothing such as safety shoes, safety glasses, work gloves and hard hats.
May I deduct job search expenses?
You may claim certain expenses you incur in looking for a new job in your present occupation, even if you do not find or take a new job. You may not claim a deduction if you are looking for a job in a new occupation or if you are seeking employment for the first time.
May I deduct the cost of professional journals and other job-related publications?
According to tax law, subscriptions to professional and trade journals qualify as miscellaneous itemized deductions as long as these publications relate to your work. Tax rule says that you may write off magazine subscriptions only one year at a time. You may not write off the cost of a three-year subscription all in one year.
May I deduct the commissions I pay to purchase securities?
You may not write off commissions and other expenses you pay when you purchase investments. Those expenses are considered part of the cost of your investment and contribute to the property’s basis, that is, its cost for tax purposes.
May I claim as miscellaneous itemized deductions, costs I pay for tax return preparation and assistance?
You usually can write off, in the year you pay them, tax counsel and tax return preparation fees related to your federal taxes. In addition, you may be entitled to deduct the cost of advice you receive for gift and estate planning attributed to tax matters. The cost of tax planning and preparation software and books is deductible as well, as is any fee you pay for filing your return electronically. These costs are deductible in the year paid.
Are legal fees deductible as a miscellaneous itemized deduction?
Attorney fees incurred in connection with legal separation, divorce or support agreements are generally not deductible. However, attorney fees related to obtaining alimony payments may be deductible because they pertain to producing taxable income. The cost of legal advice about the tax consequences of alimony and property settlement may also be claimed as a miscellaneous itemized deduction.