Miscellaneous tax deductions
If you choose electronic filing, any fee you paid for that service is deductible here. The IRS now even lets you deduct the convenience fee you were charged when you paid your e-filed taxes by credit card.
Just remember, you deduct your tax-preparation expenses for the tax year in which you paid them, not the tax year for which you are filing. So on your 2012 return, you count the tax-related costs you incurred last year to prepare your 2011 taxes. Any expenses you fork over now to complete your current return will count when you file your 2013 forms next year.
Once you've totaled your tax-prep costs, enter them on line 22 of Schedule A.
Other miscellaneous deductions
The final 2 percent deduction category is "other" expenses. For most taxpayers, these are costs to produce or collect income, such as investment-related fees, or to manage or maintain property that provides you with some extra earnings.
For the IRS to accept these deductions, the expenses must be "reasonably and closely related to" a taxpayer's income-producing efforts. Some common expenses that meet this requirement are clerical help in caring for investments, depreciation on home computers used to track and manage investments, and the fee for a safe-deposit box in which you keep investment data. If, however, your bank box holds only jewelry and other personal items, or even tax-exempt securities, the box rental fee is not deductible.
You also can write off several investment-related fees that, while small, could add up. They include service charges on dividend reinvestment plans and trustee's fees you paid for your IRA. Just make sure your retirement account fee is billed separately rather than included as part of your account's general management costs, and that you pay it separately.
Even costs associated with a recreational activity could come into play. Take, for example, an amateur photographer who snaps shots of graduations or weddings for the neighbors and gets a few bucks in return. The shutterbug can deduct camera-related expenses as a miscellaneous expense as long as the amount isn't more than the payments he or she got. The IRS frowns on using hobby expenses to reduce taxes.
All allowable "other" miscellaneous deductions are entered on Schedule A's line 23. Then all three category amounts (lines 21, 22 and 23) are totaled. Unfortunately, because of the AGI percentage limit, that's not what you can deduct.
Maximizing miscellaneous deductions
Now you must take your AGI (from line 38 of your Form 1040), multiply it by 2 percent and enter the amount on line 26 of your Schedule A.
If that income percentage is more than your miscellaneous deductions total, you're out of tax-deduction luck. You can't claim any of the expenses. But if your fractional AGI amount is less, subtract it from your miscellaneous deductions total -- the remainder is what you can claim as an itemized deduction.
In addition to your Schedule A calculations, you might have to complete additional tax forms or work sheets to claim some of these miscellaneous expenses. You can find a complete list of the IRS-approved deductions (and those that aren't OK), as well as the other tax paperwork each might require in IRS Publication 529, Miscellaneous Deductions. But if the extra paper gets you over the 2-percent-of-AGI hurdle, the time spent is probably worth it.
And what if your miscellaneous efforts fell a bit short this filing season? Then set up a deduction bunching strategy now to guarantee that future sundry expenses aren't wasted. This is simply bunching, or gathering your expenses into one tax year, rather than spreading the costs over several. By doing so, you often can accumulate enough expenses to exceed the deduction threshold.
For example, renew your business subscriptions in December instead of January, or prepay your professional association dues early. This will help turn "nearly" deductible expenses one year into full-fledged tax breaks the next filing season.
The only downside of this plan is that it usually helps you out only every other year. When you push expenses into one year, you generally will find yourself short of the itemized deduction percentage requirement the next year. But getting the breaks on alternate tax filings is still better than missing out on them every year.