We’ve gone over some items, such as deductions for charity and medical costs, that have been changed in the new Tax Cuts and Jobs Act (TCJA) and won’t be available when filing for the 2018 return. Still, there are additional issues to ponder: The massive tax law passed at the end of last year eliminates certain tax breaks and scales back others.
For example, the TCJA repeals the write-off for miscellaneous expenses on Schedule A, a hodgepodge of deductible expenses that don’t fit neatly into any other category. As with many other new tax provisions for individuals, the deduction is repealed for 2018 and thereafter but then is scheduled to return in 2026.
However, miscellaneous expenses can still be deducted on 2017 returns that must be filed in 2018. This deduction is available only for the excess above 2 percent of your adjusted gross income (AGI).
Suppose your AGI is $100,000, and you incur $1,975 of miscellaneous expenses in 2017. As a result, your deduction is zero, because you don't clear the 2 percent-of-AGI floor. On the other hand, if you’ve incurred $3,000 of miscellaneous expenses, you’re entitled to deduct $1,000 on your 2017 return.
The laundry list of deductible expenses is long and varied but can generally be broken down into two main groups: production-of-income expenses and unreimbursed employee business expenses.
1. Production of income expenses: This category covers the cost of investment, financial and tax services and the like. It includes the following common examples:
Appraisal fees for charitable donations of property and casualties
Custodial fees for IRAs
Hobby losses up to the amount of hobby income
Investment and financial planning fees
Safe deposit rentals for storing non‑tax‑exempt securities
Subscriptions to financial planning magazines and journals
Tax assistance fees
Note that the cost of having a tax return prepared, or obtaining professional advice relating to tax matters, counts as a production-of-income expense for this purpose.
2. Unreimbursed employee business expenses: These are job-related expenses that you pay out of your own pocket. Some common examples are as follows:
Cell phones and home computers when required as a condition of employment
Dues for professional organization
Education related to employment
Home office expenses (subject to business use limits)
Licenses and regulatory fees
Malpractice insurance premiums
Subscriptions to professional journals and magazines
Travel and entertainment for your business (limited to 50 percent for meals)
Work clothes or uniforms
Note that you can deduct the cost of seeking employment — for example, printing out resumes and fees for an employment agency — whether or not you actually get a job.
It’s easy for random expenses to fall through the cracks. Advise your clients to scour their records — and check things over twice — before they prepare to file their returns. Just one or two extra miscellaneous items could put them over the 2 percent-of-AGI floor threshold or increase an existing deduction. Reminder: This deduction won’t be around after this year.
This article is part of a series titled Vintage 2017 Tax Deductions, which focuses on the key deductions your clients may be able to claim under the new tax law.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...