What it means
An itemised deduction is an expense that taxpayers may subtract from their income instead of using the standard deduction. Publication 529 grouped many small, varied costs under a heading of miscellaneous deductions.
They included unreimbursed employee expenses, fees paid to prepare a tax return, safe deposit box rental for investments and some costs of producing taxable income. Under older rules, most of these items were subject to a floor.
Only the part of the total that exceeded 2% of adjusted gross income, which is the taxpayer's income after certain adjustments, could be deducted. This meant that a taxpayer with modest expenses often received no benefit at all.
In more recent years, legislation has suspended most miscellaneous deductions that were subject to the 2% floor. A few remain, such as certain gambling losses and some other items that were never subject to the floor.
Because the law has changed more than once, readers should check the publication for the tax year in question and confirm what is available. For employees, the change has been significant.
Costs such as work-related travel, tools and home office expenses that were once deductible on a personal return are now generally not deductible unless the employer reimburses them. Self-employed people are in a different position, as they can deduct ordinary and necessary business expenses on their business schedules, which are covered by other guides.
The publication is still useful as a reference. It explains the logic of what the tax code treats as a deductible cost, it helps when preparing amended returns for earlier years, and it shows the difference between personal and business deductions.
Tax professionals consult it together with the more current guidance.
In practice
Real-world examples.
Example
A salaried engineer paid $1,200 for professional dues and $900 for tools his employer did not reimburse. Under the older rules he could add these to other miscellaneous costs and deduct only the part above the 2% floor. Under the rules that have applied since the suspension he would generally not be able to.
Example
An accountant preparing an amended return for an earlier tax year uses the publication to confirm which expenses were deductible at that time. She checks that the year's rules and the 2% calculation were applied correctly.
Example
A retiree pays a fee to a tax preparer and an annual fee for a safe deposit box that holds investment documents. She reads the publication and finds that those costs fall into the category that has been suspended, so she does not claim them.
Formula
Calculation
Deductible amount under a 2% floor = total miscellaneous expenses - (2% x adjusted gross income), not below zero
This rule applied before the suspension, and it is shown here to explain how the floor worked. A taxpayer has adjusted gross income of $100,000 and $3,500 of qualifying miscellaneous expenses. The floor is 0.02 x 100,000 = $2,000. The deductible amount is 3,500 - 2,000 = $1,500. If the expenses had been only $1,800, the result would have been 1,800 - 2,000, which is below zero, so the deduction would have been $0.Case study
Seen in the real world.
Calloway and Reed is an illustrative, fictional accounting practice that handles personal tax returns. A new client brought in a pile of receipts for job-related costs from several earlier years and asked about amending his returns.
The partner used the publication for each year. For a year when the old rules applied, the client's adjusted gross income of $80,000 produced a floor of $1,600, and his expenses of $2,900 gave a deduction of 2,900 - 1,600 = $1,300. For later years the deduction was not available, so no amended return was worth filing.
The illustrative lesson is that the right year's rules decide the answer, and that reading the publication for the specific year avoids both missed claims and invalid ones.
Watch out
Common mistakes.
- Using an old copy of the publication and claiming deductions that have since been suspended.
- Forgetting the 2% floor when it applied, so overstating the deductible amount.
- Treating employee and self-employed expenses the same way, when business owners deduct costs on their business schedules and employees have been much more restricted.
Questions
People also ask.
What is a miscellaneous itemised deduction?
It is a smaller expense, such as unreimbursed work costs or tax preparation fees, that was grouped together and deducted from income when a taxpayer itemised.
Can I still deduct unreimbursed employee expenses?
Under the rules that have applied in recent years generally no, but the law changes, so check the guidance for the relevant tax year.
Where do I find the latest version?
The tax authority publishes its guides on its website, with a separate edition for each tax year.
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