Bunching strategy for “miscellaneous” deductions

Miscellaneous itemized deductions for any tax year are allowable only to the extent they exceed 2% of the taxpayer’s adjusted gross income (AGI). To the extent they don’t exceed 2%, the deductions are lost. Thus, it is very important to have proper planning to maximize your income tax deductions.

 

Most common miscellaneous itemized deductions are:

  • unreimbursed employee business expenses such as expenses for transportation and lodging while away from home, business meals and entertainment, continuing education courses, subscriptions to professional journals, union or professional dues, professional uniforms, job hunting, and the business use of the employee’s home;
  • investment advisory fees, subscriptions to investment advisory publications, certain attorneys’ fees, and the cost of safe deposit boxes; and
  • tax return preparation costs.

Classifying Miscellaneous Deductions

Taxpayers should try to bunch their miscellaneous itemized deductions in certain tax years to maximize the deductible excess over 2% of AGI. This can be accomplished by taking a number of actions before the end of 2015 such as extending subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc.

 

Miscellaneous itemized deductions not allowed for alternative minimum tax (AMT)

To the extent that a deduction is barred under these rules, it is lost. There is no carryover. Miscellaneous itemized deductions aren’t allowed for alternative minimum tax (AMT) purposes. Consider the effect on AMT before accelerating these deductions.

The 2% floor isn’t an obstacle insofar as employee business expenses are concerned if the employer uses an expense allowance arrangement that qualifies as an “accountable plan.” Under such an arrangement, the employer’s reimbursement of employee business expenses is neither includible in the employee’s gross income nor deductible by the employee.