If you itemize deductions on your federal income tax return instead of taking the standard deduction, don’t overlook the miscellaneous deductions available. There are various types of expenses you can deduct, that are generally related to your investments and other income-producing property.
The categories of itemized deductions you can claim on Schedule A of Form 1040 include Medical and Dental Expenses, Taxes, Interest, Gifts to Charity, Casualty and Theft Losses, Job Expenses and Most Other Miscellaneous Deductions, and finally, Other Miscellaneous Deductions. Job Expenses and Most Other Miscellaneous Deductions are subject to the 2% of adjusted-gross-income (AGI) limit. That is, they are deductible to the extent their total exceeds 2% of your adjusted gross income. But expenses in the last category, Other Miscellaneous Deductions, are not subject to the limit.
Itemized Deductions Subject to 2% of AGI Limit
There are three categories of deductions subject to the 2% of adjusted-gross-income limit:
Un-reimbursed employee expenses, reported on line 20 of Schedule A,
Tax preparation fees, on line 21, and
Other expenses, on line 22.
The total of these three lines is then compared to 2% of your adjusted gross income, and the excess is the amount deductible. After this group of deductions, there is another line on Schedule A for Other Miscellaneous Deductions (line 27), which are not subject to the limit.
Tax Preparation Fees
Any taxpayer who itemizes deductions can claim a deduction for the amount paid to have his or her income tax return prepared. This includes the cost of tax preparation software programs and tax publications. It also includes any fee paid for electronic filing. If you paid to have certain tax schedules related to your business or income-producing activity prepared, and you can identify that amount, you should deduct the cost of preparing that schedule (C or C-EZ, E or F, for example) as part of the expenses you report on that particular schedule. This way the expense would be fully deductible and not subject to the 2% of AGI limitation. Any remaining amount of your tax preparation fees that are not specifically allocable to a particular tax schedule can be claimed as an itemized deduction on line 21 of Schedule A.