The part of your total Job Expenses and Certain Miscellaneous Expenses that exceeds 2% of your adjusted gross income (AGI) can be taken as a deduction from taxable income on Schedule A of Form 1040.
There are 3 basic categories of expenses that fall under this 2% rule:
Employee business expenses
Tax-related expenses
Investment-related expenses
When your employer does not reimburse you for business expenses, you can deduct the ordinary and necessary business-related expenses that you have under the 2% rule on Schedule A of Form 1040. These include:
Travel
Entertainment
Business gifts
Local transportation
An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary. Some examples of costs you incur in connection with your job that you can deduct under the 2% rule include:
Automobile expenses
Home-office expenses
Unreimbursed travel, entertainment, and gift expenses
The cost of special work clothes, which are not suitable for everyday wear
For a complete discussion of employee business expenses, please click Take Me To, scroll down to Deductions, and click Employee Business Expenses.
For more information on what is and what isn’t considered a deductible employee business expense, see IRS Publication 463, Travel, Entertainment and Gift Expenses or IRS Publication 529, Miscellaneous Deductions.
You can deduct the cost of tax advice, including long distance phone calls to the IRS, and tax preparation under the 2% rule on Schedule A of Form 1040. However, if you have your own business or a rental activity, the cost of tax help for those business activities is fully deductible on your Schedule C or Schedule E, respectively. The remainder should be claimed here under tax-related expenses on Schedule A.
In addition, the cost of software that tracks deductible expenses, as well as the taxable sales of assets and investments, may be deductible. If you prepare your own taxes, what you pay for tax planning and preparation manuals and tax preparation software is deductible, as is any electronic filing fee. However, if you pay your tax electronically by credit card, you can’t deduct the convenience fee that you are charged if you paid using MasterCard, Discover Card, American Express or VISA. If you file a paper return, you can deduct the cost of postage.
Any part of an attorney’s fee that is attributable to tax advice is also a deductible tax-related expense, as is your lawyer’s fee for securing an award for alimony in a divorce. If you find yourself in court fighting the IRS over a tax issue, include what you pay your lawyer, as well as all court filing fees.
For more information on what is and what isn’t considered a deductible tax-related expense, see IRS Publication 529, Miscellaneous Deductions.
You can deduct investment fees, custodial fees, administration fees, and other expenses you paid for managing your investments that produce taxable income under the 2% limitation rule. These include:
The cost of safe-deposit box rental for storage of taxable securities
The cost of investment books, magazines, and newsletters purchased for investment advice
The cost of computer software or online services in connection with taxable investment activities
The cost of a computer used in whole or in part for investment purposes taken as depreciation, and the cost of investment counseling and/or management.
You can’t include the cost of attending investment seminars or meetings.
For more information on what is and what isn’t considered a deductible investment-related expense, see IRS Publication 550:Investment Income and Expenses.