Union Dues and Expenses
You can deduct dues and initiation fees you pay for union membership.
You can also deduct assessments for benefit payments to unemployed union members.
However, you cannot deduct the part of the assessments or contributions that provides
funds for the payment of sick, accident, or death benefits. Also, you cannot deduct
contributions to a pension fund even if the union requires you to make the contributions.
You may not be able to deduct amounts you pay to the union that are related to certain
lobbying and political activities. See Lobbying Expenses under Nondeductible
Expenses, later.
Work Clothes and Uniforms
You can deduct the cost and upkeep of work clothes if the following
two requirements are met.
- You must wear them as a condition of your employment.
- The clothes are not suitable for everyday wear.
 It is not
enough that you wear distinctive clothing. The clothing must be specifically required by
your employer. Nor is it enough that you do not, in fact, wear your work clothes away from
work. The clothing must not be suitable for taking the place of your regular clothing.
Examples of workers who may be able to deduct the cost and upkeep of work clothes are:
delivery workers, firefighters, health care workers, law enforcement officers, letter
carriers, professional athletes, and transportation workers (air, rail, bus, etc.).
Musicians and entertainers can deduct the cost of theatrical clothing and accessories
that are not suitable for everyday wear.
However, work clothing consisting of white cap, white shirt or white jacket, white bib
overalls, and standard work shoes, which a painter is required by his union to wear on the
job, is not distinctive in character or in the nature of a uniform. Similarly, the costs
of buying and maintaining blue work clothes worn by a welder at the request of a foreman
are not deductible.
Protective clothing. You can
deduct the cost of protective clothing required in your work, such as safety shoes or
boots, safety glasses, hard hats, and work gloves.
Examples of workers who may be required to wear safety items are: carpenters, cement
workers, chemical workers, electricians, fishing boat crew members, machinists, oil field
workers, pipe fitters, steamfitters, and truck drivers.
Military uniforms. You generally
cannot deduct the cost of your uniforms if you are on full-time active duty in the armed
forces. However, if you are an armed forces reservist, you can deduct the
unreimbursed cost of your uniform if military regulations restrict you from wearing it
except while on duty as a reservist. In figuring the deduction, you must reduce the cost
by any nontaxable allowance you receive for these expenses.
If local military rules do not allow you to wear fatigue uniforms when you are off
duty, you can deduct the amount by which the cost of buying and keeping up these uniforms
is more than the uniform allowance you receive.
If you are a student at an armed forces academy, you cannot deduct the cost of your
uniforms if they replace regular clothing. However, you can deduct the cost of insignia,
shoulder boards, and related items.
You can deduct the cost of your uniforms if you are a civilian faculty or staff member
of a military school.
Tax Preparation Fees
You can usually deduct tax preparation fees in the year you pay them.
Thus, on your 2002 return, you can deduct fees paid in 2002 for preparing your 2001
return. These fees include the cost of tax preparation software programs and tax
publications. They also include any fee you paid for electronic filing of your return.
Deduct expenses of preparing tax schedules relating to profit or loss from business
(Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses
(Schedule F) on the appropriate schedule. Deduct expenses of preparing the remainder of
the return on line 21, Schedule A (Form 1040).
Other Expenses
You can deduct certain other expenses as miscellaneous itemized deductions subject to
the 2%-of- adjusted-gross-income limit. These are expenses you pay:
- To produce or collect income that must be included in your gross income,
- To manage, conserve, or maintain property held for producing such income, or
- To determine, contest, pay, or claim a refund of any tax.
You can deduct expenses you pay for the purposes in (1) and (2) above only if they are
reasonably and closely related to these purposes.
These other expenses include the following items.
- Appraisal fees for a casualty loss or charitable contribution.
- Casualty and theft losses from property used in performing services as an employee.
- Clerical help and office rent in caring for investments.
- Depreciation on home computers used for investments.
- Excess deductions (including administrative expenses) allowed a beneficiary on
termination of an estate or trust.
- Fees to collect interest and dividends.
- Hobby expenses, but generally not more than hobby income.
- Indirect miscellaneous deductions of pass-through entities.
- Investment fees and expenses.
- Legal fees related to producing or collecting taxable income or getting tax advice.
- Loss on deposits in an insolvent or bankrupt financial institution.
- Repayments of income.
- Repayments of social security benefits.
- Safe deposit box rental.
- Service charges on dividend reinvestment plans.
- Tax advice and preparation fees, including fees for electronic filing.
- Trustee's fees for your IRA, if separately billed and paid.
If the expenses you pay produce income that is only partially taxable, see Tax-Exempt
Income Expenses, later, under Nondeductible Expenses.
Appraisal Fees
You can deduct appraisal fees if you pay them to figure a casualty
loss or the fair market value of donated property.
Certain Casualty and Theft Losses
You can deduct a casualty or theft loss as a miscellaneous itemized
deduction subject to the 2% limit if you used the damaged or stolen property in
performing services as an employee. First report the loss in Section B of Form 4684, Casualties
and Thefts. You may also have to include the loss on Form 4797, Sales of Business
Property, if you are otherwise required to file that form. Your deduction is the
amount of the loss included on lines 32 and 38b of Form 4684 and line 18b(1) of Form 4797.
For more information on casualty and theft losses, see Publication 547, Casualties,
Disasters, and Thefts.
Clerical Help and Office Rent
You can deduct office expenses, such as rent and clerical help, that
you have in connection with your investments and collecting the taxable income on
them.
Depreciation on Home Computer
You can deduct depreciation on your home computer if you use it to
produce income (for example, to manage your investments that produce taxable
income). You generally must depreciate the computer using the straight line method over
the Alternative Depreciation System (ADS) recovery period. But if you work as an employee
and also use the computer in that work, see Depreciation on Computers or Cellular
Telephones under Unreimbursed Employee Expenses, earlier. For more
information on depreciation, see Publication 946.
Excess Deductions of an Estate
If an estate's total deductions in its last tax year are more than its
gross income for that year, the beneficiaries succeeding to the estate's property
can deduct the excess. Do not include deductions for the estate's personal exemption and
charitable contributions when figuring the estate's total deductions. The beneficiaries
can claim the deduction only for the tax year in which, or with which, the estate
terminates, whether the year of termination is a normal year or a short tax year. For more
information, see Termination of Estate in Publication 559, Survivors,
Executors, and Administrators.
Fees To Collect Interest and Dividends
You can deduct fees you pay to a broker, bank, trustee, or similar
agent to collect your taxable bond interest or dividends on shares of stock. But
you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or
bonds. You must add the fee to the cost of the property.
You cannot deduct the fee you pay to a broker to sell securities. You can use the fee
only to figure gain or loss from the sale. See the instructions for columns (d) and (e) of
Schedule D (Form 1040) for information on how to report the fee.
Hobby Expenses
You can generally deduct hobby expenses, but only up to the amount of
hobby income. A hobby is not a business because it is not carried on to make a
profit. See Not-for-Profit Activities in chapter 1 of Publication 535.
Indirect Deductions of
Pass-Through Entities
Pass-through entities include partnerships, S corporations, and mutual
funds that are not publicly offered. Deductions of pass-through entities are passed
through to the partners or shareholders. The partners or shareholders can deduct their
share of passed-through deductions for investment expenses as miscellaneous itemized
deductions subject to the 2% limit.
Example. You are a member of an investment club that is formed
solely to invest in securities. The club is treated as a partnership. The partnership's
income is solely from taxable dividends, interest, and gains from sales of securities. In
this case, you can deduct your share of the partnership's operating expenses as
miscellaneous itemized deductions subject to the 2% limit. However, if the investment club
partnership has investments that also produce nontaxable income, you cannot deduct your
share of the partnership's expenses that produce the nontaxable income.
Publicly offered mutual funds. Publicly
offered mutual funds do not pass deductions for investment expenses through to
shareholders. A mutual fund is publicly offered if it is:
- Continuously offered pursuant to a public offering,
- Regularly traded on an established securities market, or
- Held by or for at least 500 persons at all times during the tax year.
A publicly offered mutual fund will send you a Form 1099-DIV, or a substitute form,
showing the net amount of dividend income (gross dividends minus investment expenses).
This net figure is the amount you report on your return as income. You cannot deduct
investment expenses.
Information returns. You should receive information returns from
pass-through entities.
Partnerships and S corporations. These entities issue
Schedule K-1, which lists the items and amounts you must report, and identifies the tax
return schedules and lines to use.
Nonpublicly offered mutual funds. These funds will send you a Form 1099-DIV, Dividends and Distributions, or
a substitute form, showing your share of gross income and investment expenses. You
can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit.
Investment Fees and Expenses
You can deduct investment fees, custodial fees, trust administration
fees, and other expenses you paid for managing your investments that produce
taxable income.
Legal Expenses
You can usually deduct legal expenses that you incur in attempting to
produce or collect taxable income or that you pay in connection with the
determination, collection, or refund of any tax.
You can also deduct legal expenses that are:
- Related to either doing or keeping your job, such as those you paid to defend yourself
against criminal charges arising out of your trade or business,
- For tax advice related to a divorce if the bill specifies how much is for tax advice and
it is determined in a reasonable way, or
- To collect taxable alimony.
You can deduct expenses of resolving tax issues relating to profit or loss from
business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and
expenses (Schedule F) on the appropriate schedule. You deduct expenses of resolving
nonbusiness tax issues on Schedule A (Form 1040). See Tax Preparation Fees, earlier.
Loss on Deposits
If you can reasonably estimate the amount of your loss on money
deposited in a bankrupt or insolvent financial institution, you can generally
choose to deduct it in the current year even though its exact amount has not been finally
determined. Once you make this choice, you cannot change it without IRS approval.
If none of the deposit is federally insured, you can deduct the loss in either of the
following ways.
- As a miscellaneous itemized deduction subject to the 2% limit. Write the name of the
financial institution and Insolvent Financial Institution beside the amount on
Schedule A, line 22. This deduction is limited to $20,000 ($10,000 if you are married
filing separately) for each financial institution, reduced by any expected state insurance
proceeds.
- As a casualty loss. See Publication 547 for details.
If any part of the deposit is federally insured, you can deduct the loss only as a
casualty loss.
Exception. You cannot make this choice if you are a 1%-or-more-owner
or an officer of the financial institution, or are related to such owner or officer. For a
definition of related, see Deposit in Insolvent or Bankrupt Financial
Institution in chapter 4 of Publication 550.
Actual loss different from estimated loss. If you make this choice
and your actual loss is less than your estimated loss, you must include the excess in
income. See Recoveries in Publication 525. If your actual loss is more than your
estimated loss, treat the excess loss as explained under Choice not made, next.
Choice not made. If you do not make this choice (or if you have an
excess actual loss after choosing to deduct your estimated loss), treat your loss (or
excess loss) as a nonbusiness bad debt (deductible as a short-term capital loss) in the
year its amount is finally determined. See Nonbusiness Bad Debts in chapter 4 of
Publication 550.
Repayments of Income
If you had to repay an amount that you included in income in an
earlier year, you may be able to deduct the amount you repaid. If the amount you
had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2%
limit. If it was more than $3,000, see Repayments Under Claim of Right under Deductions
Not Subject to the 2% Limit, later.
Repayments of Social Security Benefits
If the total of the amounts in box 5 (net benefits for 2002) of all
your Forms SSA-1099, Social Security Benefit Statement, and Forms
RRB-1099, Payments By the Railroad Retirement Board, is a negative figure (a
figure in parentheses), you may be able to take a miscellaneous itemized deduction subject
to the 2% limit. The amount you can deduct is the part of the negative figure that
represents an amount you included in gross income in an earlier year.
The amount in box 5 of Form SSA-1099 or RRB-1099 is the net amount of your benefits for
the year. It will be a negative figure if the amount of benefits you repaid in 2002 (box
4) is more than the gross amount of benefits paid to you in 2002 (box 3).
If the
deduction is more than $3,000, you will have to use a special computation to figure your
tax. Get Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for
additional information.
Safe Deposit Box Rent
You can deduct safe deposit box rent if you use the box to store
taxable income-producing stocks, bonds, or investment-related papers and documents.
You cannot deduct the rent if you use the box only for jewelry, other personal items, or
tax-exempt securities.
Service Charges on Dividend
Reinvestment Plans
You can deduct service charges you pay as a subscriber in a dividend
reinvestment plan. These service charges include payments for:
- Holding shares acquired through a plan,
- Collecting and reinvesting cash dividends, and
- Keeping individual records and providing detailed statements of accounts.
Trustee's Administrative Fees for IRA
Trustee's administrative fees that are billed separately and paid by
you in connection with your IRA are deductible (if they are ordinary and necessary)
as a miscellaneous itemized deduction subject to the 2% limit.
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