The simple rule of thumb is, if it affects your income and is not offered as a separate deduction on your tax forms, it may qualify as a miscellaneous deduction.

There are several caveats, of course. The first 2% of your adjusted gross income that you spend on miscellaneous items does not count. In the government’s eyes, that’s the cost of doing business. For example, if you have an adjusted gross income of $100,000, the first $2,000 in miscellaneous itemized deductions would not be allowed.

What qualifies as a miscellaneous deduction? Your tax preparation fees would be allowed, as would any books, magazines, or computer programs that help you in the preparation of your taxes. If you can relate the expense to the calculation or reduction of your income tax, it would be a miscellaneous itemized deduction. For example, if a client takes me out for dinner and we discuss his taxes, both dinners would also be allowed as a miscellaneous itemized deduction.

Investments
Investment expenses also qualify as miscellaneous deductions. These expenses include any investment books, magazines, or computer programs that relate to investment issues. Trust fees, Keogh and/or Individual Retirement Account fees (paid separately rather than directly deducted from your account) and investment advisory fees also could be deducted. Any long-distance telephone calls or mileage incurred to visit your stockbroker also could be deducted. (Broker commissions on the purchase or sale of securities are not deductible. They are added to the original cost, or basis, of what was sold and computed with the overall gain or loss there.)

Attorney fees
Legal fees that help you save or protect your money also count as a deduction. For example, legal fees paid in a divorce proceeding that specifically relate to payments (such as the payment of alimony being deductible or the receipt of alimony being taxable) would be allowed as a miscellaneous itemized deduction. Have your attorney break down his or her bill with respect to what the specific fees represent. Thus, if you are in the 28% bracket and pay $1,000 in tax-related fees, $280 is saved in taxes.

Business expenses
Miscellaneous itemized deductions also include all of your work-related business expenses.
These are the expenses that you incur that are reasonable and appropriate for your business or profession. Your employer does not have to require you to use these items. They merely must be reasonable or appropriate. (Home office deductions are a special case. For you to deduct a home office as an employee, you must get a letter from your employer stating that the home office is a “condition of your employment.”) For example, I have clients who work for the U.S. Post Office. Their uniforms would be deductible, as would the cleaning of those uniforms.

Traveling
If you are an employee, you may deduct all ordinary and necessary travel expenses that are not reimbursed to you by your employer. Travel expenses are those expenses incurred in traveling away from home for your business, profession or job.

The cost of commuting is not tax-deductible, however. For example, assume you live with your family in Chicago, but work in Milwaukee. You stay in a Milwaukee hotel and eat in a restaurant during the week and return to Chicago every weekend. You may not deduct any of your expenses for traveling back and forth, or for your meals and lodging in Milwaukee, because they are considered part of your commuting expenses.

The rules change if you are on a temporary assignment away from home. You are considered “away from home” when you are on a temporary (rather than indefinite or permanent) job that takes you away from your regular or principal place of business. Temporary employment must be temporary in contemplation and must have a foreseeable end in sight. The IRS rules state that if you anticipate your employment to last for less than a year, its status will be determined on the basis of facts and circumstances. When the employment is anticipated to last more than one year but less than two years, there is a presumption that the employment is “indefinite.” An expected or actual stay of two years or longer is considered “indefinite” regardless of the facts and circumstances and cannot be deducted.

You are also considered “traveling away from home” if your duties require you to be away from the general area of your home for a substantial period of time or longer than an ordinary day’s work. The test is usually whether you need sleep or rest. For example, assume you are a railroad conductor and you leave your home terminal on a regularly scheduled round trip between two cities, returning home 16 hours later. During the run, you are released for six hours at your turnaround point, where you eat two meals and rent a hotel room to get necessary rest before starting the return trip. You are considered away from home and may deduct the expenses.

Travel expenses include air, rail, and bus fares, the use of your car, taxi and baggage fees, meals, cleaning and laundry expenses, telephone and fax expenses, tips, and any other expenses. Travel as a form of education is no longer deductible and the expenses for “luxury water travel,” such as on a cruise ship or ocean liner, are now limited.

Other miscellaneous itemized deductions include the use of your car for business purposes. You can either deduct the actual expenses or the mileage plus any tolls, parking or proportional interest expense. If you want to deduct your actual expenses (depreciation, gas, oil, repairs, registration, AAA dues, washing, insurance and any other expense incident to the use of your car), you must determine how much you use your car for business purposes. For example, if you put 10,000 miles on you car during the year, of which 6,000 are business miles, 60% of your expenses can be deducted. Note, however, that in addition to this 60%, all of your business tolls and parking can be deducted. Again, commuting to and from work does not count.

Meals and entertainment
Taking a client or co-worker out for dinner or a night on the town? Keep a record or the receipts. Any meals and entertainment that are work related and not reimbursed by your employer are deductible. For any of these expenses, you must have a receipt if the cost was $75 or more. If the cost was less than $75, a diary notation would be sufficient if it names the person entertained, the place, cost and business discussion either before, after or during the meal/entertainment.

Other deductions
Other miscellaneous deductions include business gifts (maximum $25 per person), business supplies and any educational expenses incurred to maintain or improve your skills in your current position. Union dues and other professional society dues also qualify, as do gambling losses that do not exceed the amount you won.

Miscellaneous itemized deductions are by definition “miscellaneous.” Whatever you can think of that relates to the production, preservation or protection of your income would be deductible in this category.

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