The items that you can deduct on Schedule A under the category of “Miscellaneous Expenses” can best be described as “ordinary and necessary” expenses incurred for the production, collection or protection of income.
An ordinary expense is one that is common and accepted. A necessary expense is one that is helpful and appropriate. It may sound like semantics, but these two terms are important.
There are two types of miscellaneous expenses — those subject to a 2% Adjusted Gross Income (AGI) exclusion and those that are fully deductible.
You are allowed to deduct most miscellaneous expenses only to the extent that they exceed 2% of your AGI. If you have an AGI of $70,000, you must exclude the first $1,400 of such expenses — the first $1,400 is not deductible. If your allowable miscellaneous expenses total $1,375 you get no deduction. If the expenses total $1,620 you get a tax deduction of $220.
The miscellaneous expenses that are subject to the 2% of AGI exclusion generally fall into four categories:
- Tax preparation costs.
- Employee business expenses.
- Investment expenses.
- Legal fees to collect income
Miscellaneous expenses that are subject to the 2% of AGI exclusion are not allowed if you are a victim of the dreaded Alternative Minimum Tax.
— Robert D. Flach
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