Limit on itemized deductions.(p197)
The amount of adjusted gross income allowed without limiting your itemized deductions has increased. For 2008, if your adjusted gross income is more than $159,950 ($79,975 if you are married filing separately), you may have to reduce the amount of certain itemized deductions, including most miscellaneous deductions. For more information and a worksheet, see the instructions for Schedule A (Form 1040), line 29, or chapter 29.taxmap/pub17/p17-155.htm#en_us_publink100048734
Standard mileage rate.(p197)
The 2008 rate for business use of a vehicle is 501/2 cents per mile (581/2 cents per mile after June 30, 2008).taxmap/pub17/p17-155.htm#TXMP5eff38d7
This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. This chapter covers the following topics.
- Deductions subject to the 2% limit.
- Deductions not subject to the 2% limit.
- Expenses you cannot deduct.
You must keep records to verify your deductions. You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. For more information on recordkeeping, get Publication 552, Recordkeeping for Individuals.
You may want to see:
Publication 463 Travel, Entertainment, Gift, and Car Expenses 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040): Itemized Deductions 2106: Employee Business Expenses 2106-EZ: Unreimbursed Employee Business Expenses taxmap/pub17/p17-155.htm#en_us_publink100034633
You can deduct certain expenses as miscellaneous itemized deductions on Schedule A
(Form 1040). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38.
Generally, you apply the 2% limit after you apply any other deduction limit. For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit.
Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040).
- Unreimbursed employee expenses (line 21).
- Tax preparation fees (line 22).
- Other expenses (line 23).
Generally, the following expenses are deductible on Schedule A (Form 1040), line 21.
You can deduct only unreimbursed employee expenses that are:
- Paid or incurred during your tax year,
- For carrying on your trade or business of being an employee, and
- Ordinary and necessary.
An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.
Examples of unreimbursed employee expenses are listed next. The list is followed by discussions of additional unreimbursed employee expenses.
- Business bad debt of an employee.
- Education that is work related. (See chapter 27.)
- Legal fees related to your job.
- Licenses and regulatory fees.
- Malpractice insurance premiums.
- Medical examinations required by an employer.
- Occupational taxes.
- Passport for a business trip.
- Subscriptions to professional journals and trade magazines related to your work.
- Travel, transportation, entertainment, and gifts related to your work. (See chapter 26.)
You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. taxmap/pub17/p17-155.htm#en_us_publink100034636
If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. taxmap/pub17/p17-155.htm#en_us_publink100034637
You can claim a depreciation deduction for a computer or cell phone that you use in your work as an employee if its use is:
- For the convenience of your employer, and
- Required as a condition of your employment.
For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer or cell phone, see Publication 529.taxmap/pub17/p17-155.htm#en_us_publink100034638
You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Similar organizations include:
- Boards of trade,
- Business leagues,
- Civic or public service organizations,
- Real estate boards, and
- Trade associations.
You may not be able to deduct that part of your dues that is for certain lobbying and political activities. See Dues used for lobbying
under Lobbying Expenses,
If you were an eligible educator in 2008, and you had qualified educator expenses that you cannot take as an adjustment to gross income, you can deduct the rest of those expenses that are ordinary and necessary as an itemized deduction subject to the 2% limit. For information on educator expenses that you can take as an adjustment to gross income, see chapter 26.taxmap/pub17/p17-155.htm#en_us_publink100034641
If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home.
You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:
- As your principal place of business for any trade or business,
- As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or
- In the case of a separate structure not attached to your home, in connection with your trade or business.
The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Get Publication 587 for more detailed information and a worksheet. taxmap/pub17/p17-155.htm#en_us_publink100034642
You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. You cannot deduct these expenses if:
- You are looking for a job in a new occupation,
- There was a substantial break between the ending of your last job and your looking for a new one, or
- You are looking for a job for the first time.
You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation.taxmap/pub17/p17-155.htm#en_us_publink100034644
If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. (See Recoveries
in chapter 12.)
If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.taxmap/pub17/p17-155.htm#en_us_publink100034646
You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. taxmap/pub17/p17-155.htm#en_us_publink100034647
If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area.
You can choose to use the standard mileage rate to figure your car expenses. The 2008 rate for business use of a vehicle is 501
cents per mile (581
cents per mile after June 30, 2008). See chapter 26
for more information.
You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. taxmap/pub17/p17-155.htm#en_us_publink100034649
You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return.taxmap/pub17/p17-155.htm#en_us_publink100034650
An "income aid payment" is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. taxmap/pub17/p17-155.htm#en_us_publink100034651
If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. However, you cannot deduct the cost of travel as a form of education. taxmap/pub17/p17-155.htm#en_us_publink100034652
Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. You can depreciate the cost of tools that have a useful life substantially beyond the tax year. For more information about depreciation, see Publication 946. taxmap/pub17/p17-155.htm#en_us_publink100034653
You can deduct dues and initiation fees you pay for union membership.
You can also deduct assessments for benefit payments to unemployed union members. However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions.
You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. See Lobbying Expenses
under Nondeductible Expenses,
You can deduct the cost and upkeep of work clothes if the following two requirements are met.
- You must wear them as a condition of your employment.
- The clothes are not suitable for everyday wear.
It is not enough that you wear distinctive clothing. The clothing must be specifically required by your employer. Nor is it enough that you do not, in fact, wear your work clothes away from work. The clothing must not be suitable for taking the place of your regular clothing.
Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.).
Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.
However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. taxmap/pub17/p17-155.htm#en_us_publink100034656
You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves.
Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. taxmap/pub17/p17-155.htm#en_us_publink100034657
You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses.
If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive.
You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. taxmap/pub17/p17-155.htm#en_us_publink100034658
You can usually deduct tax preparation fees in the year you pay them. Thus, on your 2008 return, you can deduct fees paid in 2008 for preparing your 2007 return. These fees include the cost of tax preparation software programs and tax publications. They also include any fee you paid for electronic filing of your return. However, if you paid your tax by credit card, you cannot deduct the convenience fee you were charged.taxmap/pub17/p17-155.htm#en_us_publink100034659
You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. On Schedule A (Form 1040), line 23, you can deduct expenses you pay:
- To produce or collect income that must be included in your gross income,
- To manage, conserve, or maintain property held for producing such income, or
- To determine, contest, pay, or claim a refund of any tax.
You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. Some of these other expenses are explained in the following discussions.
If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses,
later, under Nondeductible Expenses.
You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. taxmap/pub17/p17-155.htm#en_us_publink100034661
You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. First report the loss in Section B of Form 4684, Casualties and Thefts. You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. For other casualty and theft losses, see chapter 25
You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. taxmap/pub17/p17-155.htm#en_us_publink100034663
You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. But if you work as an employee and also use the computer in that work, see Publication 946. taxmap/pub17/p17-155.htm#en_us_publink100034664
If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. taxmap/pub17/p17-155.htm#en_us_publink100034665
You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. You must add the fee to the cost of the property.
You cannot deduct the fee you pay to a broker to sell securities. You can use the fee only to figure gain or loss from the sale. See the instructions for Schedule D (Form 1040), columns (d) and (e), for information on how to report the fee. taxmap/pub17/p17-155.htm#en_us_publink100034666
You can generally deduct hobby expenses, but only up to the amount of hobby income. A hobby is not a business because it is not carried on to make a profit. See Activity not for profit
in chapter 12 under Other Income.
Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Deductions of pass-through entities are passed through to the partners or shareholders. The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. taxmap/pub17/p17-155.htm#en_us_publink100034668
You are a member of an investment club that is formed solely to invest in securities. The club is treated as a partnership. The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. taxmap/pub17/p17-155.htm#en_us_publink100034669
Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. A mutual fund is "publicly offered" if it is:
- Continuously offered pursuant to a public offering,
- Regularly traded on an established securities market, or
- Held by or for at least 500 persons at all times during the tax year.
A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). This net figure is the amount you report on your return as income. You cannot deduct investment expenses. taxmap/pub17/p17-155.htm#en_us_publink100034670
You should receive information returns from pass-through entities. taxmap/pub17/p17-155.htm#en_us_publink100034671
These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use.taxmap/pub17/p17-155.htm#en_us_publink100034672
These funds will send you a Form 1099-DIV, or a substitute form, showing your share of gross income and investment expenses. You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. taxmap/pub17/p17-155.htm#en_us_publink100034673
You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. taxmap/pub17/p17-155.htm#en_us_publink100034674
You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.
You can also deduct legal expenses that are:
- Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business,
- For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or
- To collect taxable alimony.
You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). See Tax Preparation Fees
For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits
in chapter 25.
If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. If it was more than $3,000, see Repayments Under Claim of Right
under Deductions Not Subject to the 2% Limit,
You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. taxmap/pub17/p17-155.htm#en_us_publink100034679
You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. These service charges include payments for:
- Holding shares acquired through a plan,
- Collecting and reinvesting cash dividends, and
- Keeping individual records and providing detailed statements of accounts.
Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. For more information about IRAs, see chapter 17