If you are able to itemize your deductions, that is, if your mortgage interest, charitable donations, real estate taxes and the like exceed the standard deduction, you may be able to take advantage of certain other expenses that are allowed as miscellaneous itemized deductions. These expenses are subject to a reduction of 2% of your adjusted gross income. These other expenses include items such as
- Depreciation on a home computer used for investments,
- Excess deductions allowed a beneficiary on termination of an estate or trust,
- Investment fees and expenses,
- Legal fees related to producing or collecting taxable income.
- Tax return preparation fees, including tax advice and tax planning fees
- Safe deposit box rental, except when the box is used for storing jewelry and other personal effects. In general, safe deposit box fees are deductible if you use it to store stock certificates, bonds, and the like
- Service charges on dividend reinvestment plans
- Trustee fees for your IRA, if they are separately billed and paid outside of the IRA.
- Clerical help and office rent incurred in managing investments.
Unreimbursed Employee Business Expenses
One of the potentially largest miscellaneous itemized deductions is unreimbursed employee business expenses. These are expenses you incur in your job, but are not reimbursed by your employer. For example, if you use your personal car for your job and your employer does not reimburse you, or reimburses less than the standard mileage rate (56.5 cents for 2013), these expenses are deductible as an itemized deduction. Other expenses such as meals and entertainment would qualify as well, as long as you are not reimbursed. Form 2106 is used to claim these expenses.
Legal fees may be deductible as long as they are related to producing or collecting taxable income. Let’s say you received punitive damages in a law suit settlement, you would be able to deduct the legal fees associated with the lawsuit because punitive damages are taxable income. However, legal fees for divorces, child custody and the like are not deductible. In addition, legal fees incurred to receive non-taxable disability payments would not be deductible.
I’m often asked if work clothes are a deductible expense. Like so many other tax questions, it depends. Some items that qualify as a tax-deductible uniform are easy to recognize; uniforms for delivery persons, postal workers, firemen, and policemen are all clearly uniforms. The cost and maintenance of hard hats, safety glasses, work gloves and the like are deductible as long as they are required in your job. “Street clothes” are not deductible. Suits for both men and women are not deductible. The basic rule of thumb is if you can wear it anywhere and everywhere, it’s not a necessary business expense and not deductible. I’m okay with that, there are times I wear a suit to work and then again on Sunday morning to church.
What about so-called corporate attire? You know, the shirts with the company logo on them? Are those considered to be uniforms or not? There seems to be a lack of consensus on this question. The bank I work for has logo shirts and while I wear them to work on Fridays, they aren’t something I would wear to church or out on a dinner date with friends. Perhaps the deductibility hinges on the “required” requirement. We are not required to wear bank logo shirts as a part of employment. We are asked to wear them, but not required, which would tend to make me believe the money I spend on logo shirts is not tax deductible. If however, the bank required all employees to wear a logo shirt on Friday, I would think it would be a deductible miscellaneous itemized deduction.
While these expenses are only beneficial if you itemize your deductions, they are worth reviewing to make sure you are taking all the deductions you are entitled to.