Now that you’re just about ready to file your tax return, are you sure you claimed all the deductions that you’re due? Most Americans know that they can deduct items such as charitable donations, mortgage interest, and property taxes. But you may not be aware of a long list of other deductions that fall into the “miscellaneous” category. Taxpayers who fail to take these deductions pass up the opportunity to make significant reductions in their tax bill, according to the Virginia Society of Certified Public Accountants (VSCPA). Here’s an overview of what you need to know.
Calculating Your AGI
To claim some deductions, you must have expenses that add up to more than 2 percent of your adjusted gross income (AGI). How can you determine if your deductions qualify? First, add up your total income for the year. Then, subtract the adjustments to your income, also known as “above the line” deductions. These adjustments typically include deductions for educator expenses, moving expenses, student loan interest and tuition payments, alimony payments, IRA contributions, and several others. Let’s say that what’s left — your AGI — adds up to $50,000. Two percent of $50,000 is $1,000. So, after you subtract $1,000 from the total amount of certain miscellaneous expenses, you can deduct the rest. You can refer to your prior year federal income tax return to get a quick estimate of your current-year AGI.
Using the 2 Percent Limit
Which expenses are subject to the 2 percent limit? They include job-related expenses that your employer does not reimburse, such as travel, entertainment and gifts associated with your work or license or legal fees or educational costs you incur. Any qualified costs you incur for a home office fall in this category, as well as depreciation on a computer your employer requires you to use in your work. Uniforms, work clothes not suitable for everyday use, and tools you need for your job would also fall into this category, as would union dues. When you look for a job in the same field, your related expenses would be subject to the 2 percent limit. Deductions for tax preparation fees and several other expenses are also subject to the 2 percent limit.
Other Miscellaneous Deductions
You can claim some expenses without deducting 2 percent of your AGI. If you own income-producing property that is stolen or suffers damage during the year, that loss will not be subject to the 2 percent limit. Examples of this type of property would include stocks, bonds, vacant lots, gold or silver and artworks. If you have gambling winnings, you have to report them on your tax return, but you can also deduct your gambling losses (up to the total of your winnings). As an example, if you win $1,000 and lose $1,200, you can deduct $1,000 of your losses, effectively canceling any taxes you might have owed on your winnings. If you have a physical or mental disability, you can also deduct the full cost of any impairment-related work expenses, such as a reader if you are blind or a sign language interpreter if you are deaf.
Other Commonly Overlooked Deductions
Those are a few of the miscellaneous deductions that many taxpayers fail to claim, but there are other valuable deductions and credits that taxpayers overlook every year. They include deductions for state and local income tax, medical and dental care expenses, the child and dependent care credit, mortgage refinancing costs and self-employment expenses. Your CPA can determine whether you qualify for these deductions, including the limits that apply in some cases.
Consult Your Local CPA
There’s lot more to know about miscellaneous deductions and about the kind of tax planning that can ensure you’re paying the right amount of taxes. Before you finalize your tax return, be sure that you’ve claimed all the deductions and credits to which you’re entitled. If you’re not sure that you’ve taken the right ones, turn to your local CPA for expert advice. He or she can answer all your financial questions.