Chapter 6
Other Itemized Deductions
Job Expenses and Most Other Miscellaneous Deductions
Schedule A allows for two types of miscellaneous deductions. One type is subject to a 2% floor of AGI; the other is not.
Employee Expense Reimbursement Plans
" Accountable Reimbursement Plan
o Employees must account for (substantiate) their expenses to the employer
o Any reimbursement in excess of the substantiated expenses must be returned to the employer
o Not income to the employee
" Nonaccountable Reimbursement Plan
o Income to the employee
o Employee reports expenses on Schedule A & Form 2106
Business Expense Records
" Amount
" Date
" Place
" Business purpose
" Business relationship
" Identity of individuals
Unreimbursed Expenses
" Vehicle(s) used for business
" Parking fees, tolls, and local transportation
" Travel while away from home, including lodging, airfare, car rental, etc.
" Other business expenses not included elsewhere on Form 2106
" Meals and entertainment
Vehicle Expenses
" Local Transportation Expenses
" Automobile Expenses - Standard or Actual?
o Standard Mileage Rate
55 cents for 2009
50 cents for 2010
Who can use it?
Own the vehicle and use standard rate in the 1st year
Must be used if a leased vehicle
Self-employed and employees can use
Built in depreciation rate -21 cents for 2010 (pg 6-6)
o Actual Car Expenses
Expense examples include: gas, oil, repairs, tires, car wash, depreciation, insurance, etc.
Who can use it? Anyone
Sometimes results in a larger deduction than standard deduction because of depreciation
Once you use actual, you cannot switch to standard mileage rate
o Vehicle expenses that can be deducted using either the Standard Mileage Rate or Actual
DMV
Parking & tolls
Interest on car loan (self-employed only)
Travel
" Requires overnight stay for business purposes
" Temporary work assignment expected to last less than one year
" Expenses allowed
o Meals (limited to 50%, 70% for employees subject to Dept of Transportation hours of service limits) & Lodging
Employees can use actual or per diem amounts; self employed must use actual lodging amounts, meals may be actual or per diem - see gsa.gov
o Cost of getting there
o Other incidental expenses - telephone, etc.
" Limits on Travel Cost
o Must be primarily business
o Expenses must be allocated between business & personal
o Foreign Travel
Meals & Entertainment
" Must be directly related or associated with business
" Actual or per diem
" Limited to 50%
" Club dues & membership fees are non-deductible
" Gift deduction is limited to $25 per person, per year
Other Business Expenses Reported
" Union dues
" Licenses and insurance
" Uniforms and safety equipment
" Employee physical
" Equipment, telephones, and computers
" Supplies
" Education - required or maintain/improve skills for present job
" Job or employment search
" Office in home - limited
o Principal place of work or where you meet clients
" Form 2106
Miscellaneous Deductions Reported on Schedule A
The three primary catagories of other non business expense include:
" Costs paid to generate or collect income
" Costs to manage, conserve, or operate income-producing property
" Funds spent to determine, contest, pay, or claim a refund of any tax
Illustrations of Other Expenses
" Safe deposit box
" Investment advice & fees
" Subscriptions to financial newspapers, financial newsletters, mutual fund reports, financial magazines, etc.
" Investment seminars and conventions
" Financial planners
" Clerical help, office expenses, and postage
" Collection fees
" Legal, accounting, and related software
" Bank/trustee costs for investment or retirement plans
" Limited depreciation on computer used for investment
" Appraisal fees for casualty loss or charitable contributions
" Repayment of excess social security received
" Trustee's commission to administer a revocable trust
" Convenience fees charges by credit card companies when paying Federal income taxes via credit card
Other Miscellaneous Deductions
" Not subject to 2% of AGI
o Gambling losses to extent of gambling winnings
o Impairment-related work expenses
Nondeductible Expenses
" Adoption costs (may qualify for a tax credit)
" Funeral costs, including the lot
" Election campaigning
" Political contributions
" Personal bank fees
" Parking tickets and fines
" Hobby losses in excess of income
" Personal rent, insurance, repairs, and telephone
" Illegal bribes and kickbacks
" Life insurance premiums
" Personal disability insurance
" Losses from sale of the taxpayer's home, car, or furniture
" Costs of meals while working late
Hobby Loss Rules
" Hobby or Business?
o Nine factors used in hobby determination
" Manner
" Expertise
" Time & effort
" Expectations that asset may appreciate
" Taxpayer's success in other activities
" History of income or loss with activity
" Amount of occasional profits
" Financial status
" Personal pleasure
o Profit shown 2 of 5 consecutive years, burden of proof shifts to IRS
" If deemed a hobby
o Income reported as other income on page 1 of Form 1040
o Expenses only allowed to the extent of income - Misc. Deduction
End of Chapter 6
