Miscellaneous Questions

I’ll be spending some time today working through expense sections of QuickBooks files that have titles like “ask my accountant” or “uncategorized expenses”.  Many of the items in those accounts won’t meet the criteria to be an expense for the taxpayer’s business, but they will be eligible for one of the more confusing personal deductions, known in the trade as “2% miscellaneous”. 

The 2% doesn’t refer to something small, as in “putting your 2-cents in”.  Instead, it’s a reference to the amount of expenses you need to have to start taking the deductions.  If the miscellaneous expenses are less than 2% of your adjusted gross income, then no deduction for you. Miscellaneous, on the other hand, means just what you think.  There is a diverse list of items  included as eligible for this deduction.  The IRS breaks the list into 3 categories:  unreimbursed employee expenses, tax preparation fees, and all other.   

Unreimbursed employee expenses are often misunderstood.  Key points to remember include that if you are not required to spend the money by your employer, you can’t get a deduction.  An example of this would be buying a computer used only for work that you can’t get done at the office -- but your employer didn’t ask you to do that.  If this applies to you, look for a new job rather than a new tax deduction.  Actually in this example you could do both because the search for a new job in the same field is deductible.

You can take a deduction if your employer partially reimburses your expenses.   Let’s say you get a travel allowance of $500, but your expenses were actually double that for a business trip.  You might be tempted to skip the hassle of getting the employer reimbursement and deduct the whole amount – it’ll help you hit the 2% threshold.  That would be a mistake.  To get the deduction, you need to ask for whatever reimbursement you can get and then report all the info on form 2106, Unreimbursed Employee expenses.

Some miscellaneous expenses aren’t subject to the 2% floor, so if you itemize, you can take them from the first dollar.  My favorite in this group is gambling losses that offset gambling winnings.  There’s tax policy in action, gamblers get the deduction first, but workers who spend their own money to meet employer goals have “eat” up to 2% of their AGI in expenses.  This makes me think it’s time to turn off my computer and head to Meadows.