We all want to lower our taxes, and deductions are a good way to make that happen. Deductions allow you to exempt a portion of your income from taxes, and your savings are based on your effective tax rate. If you typically fall into the 25% tax bracket and manage to scrounge up $10,000 in deductions, you'll shave a cool $2,500 off your tax bill. While some deductions, like mortgage interest and charitable contributions, can be rather sizable, other deductions will make less of a dent in your tax bill. Nevertheless, the more deductions you come up with in total, the more money you'll save, and that's why it's important to know what miscellaneous itemized deductions to claim.
Continue Reading Below
The IRS allows taxpayers to write off the cost of miscellaneous deductions such as unreimbursed job expenses, tax preparation fees, and certain investment fees. All you need to do is list your deductions on your Schedule A. There is a catch, however, and it's that you can only deduct miscellaneous expenses that exceed 2% of your adjusted gross income (AGI). Even if you're not a particularly high earner, if you don't have much in the way of miscellaneous deductions, you may not get any tax-saving benefit of out them.
Image source: Getty Images.
Claiming miscellaneous itemized deductions
There are several items that count as miscellaneous deductions for tax purposes. Job expenses, for example, that aren't reimbursed by your employer qualify as miscellaneous deductions. These might include union dues, professional association fees, subscriptions, coursework to further or maintain your skills and credentials, and uniforms that can't also be used as regular attire. Furthermore, if you spend money looking for a job in your current field, you can deduct costs such as hiring a career counselor, using a resume service, and traveling to and from interviews.
You can also deduct the cost of certain investment expenses, such as legal and investment fees and accounting advice that's aimed at helping you make money. Along these lines, if you hire a professional to do your taxes, you can include your tax preparation fees as a miscellaneous deduction. Just be aware that you can only claim these fees for the tax year in which you actually spend the money -- meaning, if you pay a professional in 2017 to do your 2016 return, that would count as a 2017 deduction. Finally, if you come to require the help of an accountant or attorney to deal with an IRS tax battle, you can include those costs as well.
Continue Reading Below
That said, you can only take a deduction for miscellaneous expenses if your total eligible costs exceed 2% of your AGI. If, for example, your AGI is $40,000 a year and you spend $600 on unreimbursed job expenses and another $250 for tax prep, you'll only get to take a deduction for whatever amount exceeds 2% of $40,000, or $800. So in this case, your deduction will amount to a not-so-impressive $50, which, if your effective tax rate is 25%, will only save you $12.50.
If you are going to claim miscellaneous deductions on your taxes, be sure to keep impeccable records throughout the year. This way, you'll know exactly how much to write off and, just as importantly, you'll have evidence in your corner in case the IRS questions your claim.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.