Miscellaneous   Deductions

Taxmap/pubs/p529-000.htm#TXMP078adca7 Reminders

Taxmap/pubs/p529-000.htm#TXMP3baf00dc
Limit on itemized deductions.

For 2004, if your adjusted gross income is more than $142,700 ($71,350 if married filing separately), you may have to reduce the amount of certain itemized deductions, including most miscellaneous deductions. For more information and a worksheet, see the instructions for line 28 of Schedule A (Form 1040).

Taxmap/pubs/p529-000.htm#TXMP28e5e9aa
Photographs of missing children.

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Introduction

This publication explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. This publication covers the following topics.

• Deductions subject to the 2% limit.
• Deductions not subject to the 2% limit.
• Expenses you cannot deduct.
• How to report your deductions.

You must keep records to verify your deductions. You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. For more information on recordkeeping, see Publication 552, Recordkeeping for Individuals.

Taxmap/pubs/p529-000.htm#TXMP51236875 Comments and suggestions.

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Taxmap/pubs/p529-000.htm#TXMP75ba833d Tax questions.

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Taxmap/pubs/p529-000.htm#TXMP0c15e625 Ordering forms and publications.

Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to one of the three addresses shown under How To Get Tax Help in the back of this publication.

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Taxmap/pubs/p529-000.htm#TXMP1b1ebc74 Deductions Subject   to the 2% Limit

Itemized Deduction, 2% limit

You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 37.

Generally, you apply the 2% limit after you apply any other deduction limit. For example, you apply the 50% (or 70%) limit on business-related meals and entertainment (discussed later under Travel, Transportation, Meal, Entertainment, and Gift Expenses) before you apply the 2% limit.

Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A:

• Unreimbursed employee expenses (line 20).
• Tax preparation fees (line 21).
• Other expenses (line 22).

Taxmap/pubs/p529-000.htm#TXMP63b4d620 Exceptions to 2% limit.

The following paragraphs describe certain employee business expenses that are not subject to the 2% limit. Certain legal fees not subject to the 2% limit are also discussed.

Taxmap/pubs/p529-000.htm#TXMP4890ed1b Armed Forces reservists.

If you are a member of a reserve component of the Armed Forces of the United States, and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home, under Deductions Not Subject to the 2% Limit, later.

Taxmap/pubs/p529-000.htm#TXMP3bb74000 Educators.

If you were an eligible educator in 2004, you can deduct up to $250 of qualified expenses you paid in 2004 as an adjustment to income rather than as an itemized deduction. See Educator Expenses, under Deductions Not Subject to the 2% Limit, later.

Taxmap/pubs/p529-000.htm#TXMP08eef615 Impairment-related work expenses.

If you have a physical or mental disability, certain expenses you incur that allow you to work may not be subject to the 2% limit. See Impairment-Related Work Expenses under Deductions Not Subject to the 2% Limit, later.

Taxmap/pubs/p529-000.htm#TXMP3f9f5548 Performing artists.

If you are a qualified performing artist, you may be able to deduct your employee business expenses as an adjustment to income rather than as a miscellaneous itemized deduction. See Performing Artists under Deductions Not Subject to the 2% Limit, later.

Taxmap/pubs/p529-000.htm#TXMP601846f0 State and local government officials paid on a fee basis.

If you performed services as an employee of a state or local government and you were paid in whole or in part on a fee basis, you can claim your trade or business expenses in performing those services as an adjustment to income, rather than as a miscellaneous deduction. See Officials Paid on a Fee Basis under Deductions Not Subject to the 2% Limit, later.

Taxmap/pubs/p529-000.htm#TXMP35e24b26 Unlawful discrimination claims legal fees.

You may be able to deduct attorney fees and court costs for actions involving a claim of unlawful discrimination, a claim against the U. S. Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act as an adjustment to income on Form 1040, line 35, rather than as a miscellaneous itemized deduction. See Legal Expenses under Other Expenses, later.

Taxmap/pubs/p529-000.htm#TXMP3be5399f Unreimbursed Employee Expenses

Unreimbursed Employee Expenses

You can deduct only unreimbursed employee expenses that are:

1. Paid or incurred during your tax year,
2. For carrying on your trade or business of being an employee, and
3. Ordinary and necessary.

An expense is ordinary if it is common and accepted in your type of trade or business. An expense is necessary if it is appropriate and helpful to your trade or business.

You may be able to deduct the following items as unreimbursed employee expenses.

• Business bad debt of an employee.
• Business liability insurance premiums.
• Damages paid to a former employer for breach of an employment contract.
• Depreciation on a computer or cellular telephone your employer requires you to use in your work.
• Dues to a chamber of commerce if membership helps you do your job.
• Dues to professional societies.
• Education that is work related.
• Educator expenses that are more than you can deduct on Form 1040, line 23.
• Home office or part of your home used regularly and exclusively in your work.
• Job search expenses in your present occupation.
• Laboratory breakage fees.
• Legal fees related to your job.
• Licenses and regulatory fees.
• Malpractice insurance premiums.
• Medical examinations required by an employer.
• Occupational taxes.
• Passport for a business trip.
• Repayment of an income aid payment received under an employer's plan.
• Research expenses of a college professor.
• Rural mail carriers' vehicle expenses.
• Subscriptions to professional journals and trade magazines related to your work.
• Tools and supplies used in your work.
• Travel, transportation, entertainment, and gift expenses related to your work.
• Union dues and expenses.
• Work clothes and uniforms if required and not suitable for everyday use.

Taxmap/pubs/p529-000.htm#TXMP62c28210 Business Bad Debt

Bad Debt

A business bad debt is a loss from a debt created or acquired in your trade or business. Any other worthless debt is a business bad debt only if there is a very close relationship between the debt and your trade or business when the debt becomes worthless.

A debt has a very close relationship to your trade or business of being an employee if your main motive for incurring the debt is a business reason.

Taxmap/pubs/p529-000.htm#TXMP4948870a
Example.

You make a bona fide loan to the corporation you work for. It fails to pay you back. You had to make the loan in order to keep your job. You have a business bad debt as an employee.

Taxmap/pubs/p529-000.htm#TXMP128fb6a0 More information.

For more information on business bad debts, see chapter 11 in Publication 535. For information on nonbusiness bad debts, see chapter 4 in Publication 550, Investment Income and Expenses.

Taxmap/pubs/p529-000.htm#TXMP5c3b7cec Business Liability Insurance

Business Liability Insurance

You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job.

Taxmap/pubs/p529-000.htm#TXMP54095631 Damages for Breach   of Employment Contract

Damages for Breach of Employment Contract

If you break an employment contract, you can deduct damages you pay your former employer if the damages are attributable to the pay you received from that employer.

Taxmap/pubs/p529-000.htm#TXMP1adccdfa Depreciation on Computers   or Cellular Telephones

Depreciation on Computers or Cellular Telephones

You can claim a depreciation deduction for a computer or cellular telephone that you use in your work as an employee if its use is:

1. For the convenience of your employer, and
2. Required as a condition of your employment.

Taxmap/pubs/p529-000.htm#TXMP1c1ae707 For the convenience of your employer.

This means that your use of the computer or cellular telephone is for a substantial business reason of your employer. You must consider all facts in making this determination. Use of your computer or cellular phone during your regular working hours to carry on your employer's business is generally for the convenience of your employer.

Taxmap/pubs/p529-000.htm#TXMP0df751bb Required as a condition of your employment.

This means that you cannot properly perform your duties without the computer or cellular telephone. Whether you can properly perform your duties without it depends on all the facts and circumstances. It is not necessary that your employer explicitly requires you to use your computer or cellular telephone. But neither is it enough that your employer merely states that your use of the item is a condition of your employment.

Taxmap/pubs/p529-000.htm#TXMP147cc4c9
Example.

You are an engineer with an engineering firm. You occasionally take work home at night rather than work late at the office. You own and use a computer that is similar to the one you use at the office to complete your work at home. Since your use of the computer is not for the convenience of your employer and is not required as a condition of your employment, you cannot claim a depreciation deduction for it.

Taxmap/pubs/p529-000.htm#TXMP1775e961 Which depreciation method to use.

The depreciation method you use depends on whether you meet the more-than-50%-use test.

Taxmap/pubs/p529-000.htm#TXMP22ad5d31 More-than-50%-use test met.

You meet this test if you use the computer or cellular telephone more than 50% in your work. If you meet this test, you can claim accelerated depreciation under the General Depreciation System (GDS). In addition, you may be able to take the section 179 deduction and the 50% or 30% special depreciation allowance for the year you place the item in service.

Taxmap/pubs/p529-000.htm#TXMP46640f9f More-than-50%-use test not met.

If you do not meet the more-than-50%-use test, you are limited to the straight line method of depreciation under the Alternative Depreciation System (ADS). You also cannot claim the section 179 deduction or a special depreciation allowance. (But if you use your computer in a home office, see the exception below.)

Taxmap/pubs/p529-000.htm#TXMP6e659273 Investment use.

Your use of a computer or cellular telephone in connection with investments (described later under Other Expenses) does not count as use in your work. However, you can combine your investment use with your work use in figuring your depreciation deduction.

Taxmap/pubs/p529-000.htm#TXMP1e298a32 Exception for computer used in a home office.

The more-than-50%-use test does not apply to a computer used only in a part of your home that meets the requirements described later under Home Office. You can claim accelerated depreciation using GDS for a computer used in a qualifying home office, even if you do not use it more than 50% in your work. You also may be able to take a section 179 deduction and a special depreciation allowance for the year you place the computer in service.

Taxmap/pubs/p529-000.htm#TXMP520afc7b More information.

For more information on depreciation and the section 179 deduction for computers and other items used in a home office, see Business Furniture and Equipment in Publication 587. Also see chapter 5 of Publication 946. Publication 946 has detailed information about the section 179 deduction, special depreciation allowance, and depreciation deductions using GDS and ADS.

Taxmap/pubs/p529-000.htm#TXMP44c9a955 Reporting your depreciation deduction.

Use Part V of Form 4562, Depreciation and Amortization, to claim the depreciation deduction for a cellular telephone or for a computer that you did not use only in your home office. Complete Part I of Form 4562 if you are claiming a section 179 deduction. However, if you file Form 2106 or 2106-EZ, claim your depreciation deduction on that form and not on Form 4562.

Taxmap/pubs/p529-000.htm#TXMP6b60edfd Computer used in a home office.

Use Part III of Form 4562 to claim the depreciation deduction for a computer you placed in service during 2004 and used only in your home office. Complete Part I of Form 4562 if you are claiming a section 179 deduction. Complete Part II of the form if you are claiming the special depreciation allowance.

Do not use Form 4562 to claim the depreciation deduction for a computer you placed in service before 2004 and used only in your home office, unless you are otherwise required to file Form 4562. Instead, report the depreciation directly on the appropriate form. (See How To Report, later.) But if you are otherwise required to file Form 4562, report the depreciation on line 17 in Part III.

You must keep records to prove your percentage of business and investment use.

Taxmap/pubs/p529-000.htm#TXMP72e3273a Dues to Chambers of Commerce   and Professional Societies

You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Similar organizations include:

1. Boards of trade,
2. Business leagues,
3. Civic or public service organizations,
4. Real estate boards, and
5. Trade associations.

You cannot deduct dues paid to an organization if one of its main purposes is to:

1. Conduct entertainment activities for members or their guests, or
2. Provide members or their guests with access to entertainment facilities.

Dues paid to airline, hotel, and luncheon clubs are not deductible. See Club Dues under Nondeductible Expenses, later.

Taxmap/pubs/p529-000.htm#TXMP04f654f1 Lobbying and political activities.

You may not be able to deduct that part of your dues that is for certain lobbying and political activities. See Lobbying Expenses under Nondeductible Expenses, later.

Taxmap/pubs/p529-000.htm#TXMP5486dee6 Education That Is Work Related

Education That Is Work Related

You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least one of the following two tests.

1. It maintains or improves skills required in your present work.
2. It is required by your employer or the law to keep your salary, status, or job, and the requirement serves a business purpose of your employer.

If your education meets either of these tests, you can deduct expenses for tuition, books, supplies, laboratory fees, and similar items, and certain transportation costs.

You cannot deduct expenses you have for education, even though one or both of the preceding tests are met, if the education:

1. Is needed to meet the minimum educational requirements to qualify you in your work or business, or
2. Will lead to qualifying you in a new trade or business.

If the education qualifies you for a new trade or business, you cannot deduct the educational expenses even if you do not intend to enter that trade or business.

Taxmap/pubs/p529-000.htm#TXMP1090953a Travel as education.

You cannot deduct the cost of travel that in itself constitutes a form of education. For example, a French teacher who travels to France to maintain general familiarity with the French language and culture cannot deduct the cost of the trip as an educational expense.

Taxmap/pubs/p529-000.htm#TXMP6498916d More information.

See chapter 12 of Publication 970, for a complete discussion of the deduction for work-related education expenses.

Taxmap/pubs/p529-000.htm#TXMP4a6e2333 Educator Expenses Over Limit

Educator Expenses Over Limit

If you were an educator in 2004 and you had qualified expenses that were more than you can deduct on Form 1040, line 23, you can deduct the rest as an itemized deduction subject to the 2% limit. See Educator Expenses, later.

Taxmap/pubs/p529-000.htm#TXMP072eaef0 Home Office

Home Office

If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home.

You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:

1. As your principal place of business for any trade or business,
2. As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or
3. In the case of a separate structure not attached to your home, in connection with your trade or business.

The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job.

Taxmap/pubs/p529-000.htm#TXMP126e34dd Principal place of business.

If you have more than one place of business, the business part of your home is your principal place of business if:

1. You use it regularly and exclusively for administrative or management activities of your trade or business, and
2. You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

Otherwise, the location of your principal place of business generally depends on the relative importance of the activities performed at each location and the time spent at each location.

You should keep records that will give the information needed to figure the deduction according to these rules. Also keep canceled checks, substitute checks, or account statements and receipts of the expenses paid to prove the deductions you claim.

Taxmap/pubs/p529-000.htm#TXMP0416ac8a More information.

See Publication 587 for more detailed information and a worksheet for figuring the deduction.

Taxmap/pubs/p529-000.htm#TXMP57225364 Job Search Expenses

New job

You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. You cannot deduct these expenses if:

1. You are looking for a job in a new occupation,
2. There was a substantial break between the ending of your last job and your looking for a new one, or
3. You are looking for a job for the first time.

Taxmap/pubs/p529-000.htm#TXMP462a9267 Employment and outplacement agency fees.

You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation.

Taxmap/pubs/p529-000.htm#TXMP7ee78c25 Employer pays you back.

If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. See Recoveries in Publication 525.

Taxmap/pubs/p529-000.htm#TXMP4e4acd78 Employer pays the employment agency.

If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.

Taxmap/pubs/p529-000.htm#TXMP5c753415 Résumé.

You can deduct amounts you spend for typing, printing, and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation.

Taxmap/pubs/p529-000.htm#TXMP1995bb2e Travel and transportation expenses.

If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area.

You may choose to use the standard mileage rate to figure your car expenses. The standard mileage rate for 2004 is 371/2 cents per mile. See Publication 463 for more information on travel and car expenses.

Taxmap/pubs/p529-000.htm#TXMP3a3b1004 Legal Fees

Legal Fees

You can deduct legal fees related to doing or keeping your job.

Taxmap/pubs/p529-000.htm#TXMP2e279f28 Licenses and Regulatory Fees

You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession.

Taxmap/pubs/p529-000.htm#TXMP3d8f061b Occupational Taxes

You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return.

Taxmap/pubs/p529-000.htm#TXMP75f477d4 Repayment of Income Aid Payment

Repayment of Income Aid Payment

An "income aid payment" is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment.

Taxmap/pubs/p529-000.htm#TXMP7a35566d Research Expenses of   a College Professor

Research Expenses of a College Professor

If you are a college professor, you can deduct your research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to the field of your teaching duties. You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. However, you cannot deduct the cost of travel as a form of education.

Taxmap/pubs/p529-000.htm#TXMP2bab9d0b Rural Mail Carriers' Vehicle Expenses

Rural Mail Carriers' Vehicle Expenses

If your expenses to use a vehicle in performing services as a rural mail carrier are more than the amount of your reimbursements, you can deduct the unreimbursed expenses. See chapter 4 of Publication 463 for more information.

Taxmap/pubs/p529-000.htm#TXMP15ef561a Tools Used in Your Work

Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. You can depreciate the cost of tools that have a useful life substantially beyond the tax year. For more information about depreciation, see Publication 946.

Taxmap/pubs/p529-000.htm#TXMP27ff7e33 Travel, Transportation, Meal, Entertainment, and Gift Expenses

Travel, Transportation, Meal, Entertainment, and Gift Expenses

If you are an employee and have ordinary and necessary business-related expenses for travel away from home, local transportation, entertainment, and gifts, you may be able to deduct these expenses. Generally, you must file Form 2106 or 2106-EZ to claim these expenses.

Taxmap/pubs/p529-000.htm#TXMP497ead16 Travel expenses.

Travel expenses are those incurred while traveling away from home for your employer. You can deduct travel expenses paid or incurred in connection with a temporary work assignment. Generally, you cannot deduct travel expenses paid or incurred in connection with an indefinite work assignment.

Travel expenses may include:

• The cost of getting to and from your business destination (air, rail, bus, car, etc.),
• Meals and lodging while away from home,
• Taxi fares,
• Baggage charges, and
• Cleaning and laundry expenses.

Travel expenses are discussed more fully in chapter 1 of Publication 463.

Taxmap/pubs/p529-000.htm#TXMP4e8f359e Temporary work assignment.

If your assignment or job away from home in a single location is realistically expected to last (and does in fact last) for 1 year or less, it is temporary, unless there are facts and circumstances that indicate it is not.

Taxmap/pubs/p529-000.htm#TXMP7786da96 Indefinite work assignment.

If your assignment or job away from home in a single location is realistically expected to last for more than 1 year, it is indefinite, whether or not it actually lasts for more than 1 year.

Employment that is initially temporary may become indefinite due to changed circumstances.

Taxmap/pubs/p529-000.htm#TXMP0e0fe44c Federal crime investigation and prosecution.

If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule for deducting temporary travel expenses. This means that you may be able to deduct travel expenses even if you are away from your tax home for more than one year.

To qualify, the Attorney General must certify that you are traveling:

1. For the federal government,
2. In a temporary duty status, and
3. To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime.

Taxmap/pubs/p529-000.htm#TXMP08f218ed Local transportation expenses.

Local transportation expenses are the expenses of getting from one workplace to another when you are not traveling away from home. They include the cost of transportation by air, rail, bus, taxi, and the cost of using your car.

You may choose to use the standard mileage rate to figure your car expenses. The standard mileage rate for 2004 is 371/2 cents per mile.

Taxmap/pubs/p529-000.htm#TXMP312e5059 Work at two places in a day.

If you work at two places in a day, whether or not for the same employer, you can generally deduct the expenses of getting from one workplace to the other.

Taxmap/pubs/p529-000.htm#TXMP4054902a Temporary workplace.

You can deduct expenses incurred in going between your home and a temporary workplace if at least one of the following applies.

1. The workplace is outside the metropolitan area where you live and normally work.
2. You have at least one regular workplace (other than your home) for the same trade or business. (If this applies, the distance between your home and the temporary workplace does not matter.)

For this purpose, a workplace is generally considered temporary if your work there is realistically expected to last (and does in fact last) for 1 year or less. It is not temporary if your work there is realistically expected to last for more than 1 year, even if it actually lasts for 1 year or less. If your work there initially is realistically expected to last for 1 year or less, but later is realistically expected to last for more than 1 year, the workplace is generally considered temporary until the date your realistic expectation changes and not temporary after that date. For more information, see chapter 4 of Publication 463.

Taxmap/pubs/p529-000.htm#TXMP7cd3076c Home office.

You can deduct expenses incurred in going between your home and a workplace if your home is your principal place of business for the same trade or business. (In this situation, whether the other workplace is temporary or regular and its distance from your home do not matter.) See Home Office, earlier, for a discussion on the use of your home as your principal place of business.

Taxmap/pubs/p529-000.htm#TXMP4a857acc Meals and entertainment.

Generally, you can deduct entertainment expenses (including entertainment-related meals) only if they are directly related to the active conduct of your trade or business. However, the expense only needs to be associated with the active conduct of your trade or business if it directly precedes or follows a substantial and bona fide business-related discussion.

You can deduct only 50% of your business-related meal and entertainment expenses unless the expenses meet certain exceptions. You apply this 50% limit before you apply the 2%-of-adjusted-gross-income limit.

Taxmap/pubs/p529-000.htm#TXMP516babf0 Meals when subject to "hours of service" limits.

You can deduct 70% of your business-related meal expenses if you consume the meals during or incident to any period subject to the Department of Transportation's "hours of service" limits. You apply this 70% limit before you apply the 2%-of-adjusted-gross-income limit.

Taxmap/pubs/p529-000.htm#TXMP5854422b Gift expenses.

You can generally deduct up to $25 of business gifts you give to any one individual during the year. The following items do not count toward the $25 limit.

• Identical, widely distributed items costing $4 or less that have your name clearly and permanently imprinted.
• Signs, racks, and promotional materials to be displayed on the business premises of the recipient.

Taxmap/pubs/p529-000.htm#TXMP15d262af Additional information.

See Publication 463 for more information on travel, transportation, meal, entertainment, and gift expenses, and reimbursements for these expenses.

Taxmap/pubs/p529-000.htm#TXMP4cb85584 Union Dues and Expenses

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.

Taxmap/pubs/p529-000.htm#TXMP6578fdc5 Work Clothes and Uniforms

Work Clothes and Uniforms

You can deduct the cost and upkeep of work clothes if the following two requirements are met.

1. You must wear them as a condition of your employment.
2. 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.

Taxmap/pubs/p529-000.htm#TXMP0251b36a 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.

Taxmap/pubs/p529-000.htm#TXMP49a2d17a 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.

Taxmap/pubs/p529-000.htm#TXMP5c608f62 Tax Preparation Fees

You can usually deduct tax preparation fees in the year you pay them. Thus, on your 2004 return, you can deduct fees paid in 2004 for preparing your 2003 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. However, if you paid your tax by credit card, you cannot deduct the convenience fee you were charged.

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 Form 1040, Schedule A, line 21.

Taxmap/pubs/p529-000.htm#TXMP7202df83 Other Expenses

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:

1. To produce or collect income that must be included in your gross income,
2. To manage, conserve, or maintain property held for producing such income, or
3. 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 traditional IRA or Roth IRA, when all amounts have been distributed to you.
• 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 fees.
• 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.

Taxmap/pubs/p529-000.htm#TXMP629feb45 Appraisal Fees

Appraisal Fees

You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property.

Taxmap/pubs/p529-000.htm#TXMP7c6b4b26 Certain Casualty and Theft Losses

Casualty and Theft Loss

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. To figure your deduction, add all casualty or theft losses from this type of property included on line 32 of Form 4684, line 38b of Form 4684, or line 18a of Form 4797. For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts.

Taxmap/pubs/p529-000.htm#TXMP0b56f573 Clerical Help and Office Rent

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.

Taxmap/pubs/p529-000.htm#TXMP429a9ce4 Depreciation on Home Computer

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.

Taxmap/pubs/p529-000.htm#TXMP73ba4606 Excess Deductions of an Estate

Estate, Deduction

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.

Taxmap/pubs/p529-000.htm#TXMP63c54d63 Fees To Collect Interest and Dividends

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.

Taxmap/pubs/p529-000.htm#TXMP7fed6a2f Hobby Expenses

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.

Taxmap/pubs/p529-000.htm#TXMP78914091 Indirect Deductions of   Pass-Through Entities

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.

Taxmap/pubs/p529-000.htm#TXMP59d0d1cf
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.

Taxmap/pubs/p529-000.htm#TXMP252ddb6c 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:

1. Continuously offered pursuant to a public offering,
2. Regularly traded on an established securities market, or
3. 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, Dividends and Distributions, 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.

Taxmap/pubs/p529-000.htm#TXMP53270b10 Information returns.

You should receive information returns from pass-through entities.

Taxmap/pubs/p529-000.htm#TXMP53bb90c9 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.

Taxmap/pubs/p529-000.htm#TXMP1bfa0a7a Nonpublicly offered mutual funds.

These funds will send you a Form 1099-DIV, 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.

Taxmap/pubs/p529-000.htm#TXMP36c719d4 Investment Fees and Expenses

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.

Taxmap/pubs/p529-000.htm#TXMP63272751 Legal Expenses

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:

1. 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,
2. 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
3. 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.

Taxmap/pubs/p529-000.htm#TXMP4c77d7dd Unlawful discrimination claims.

You may be able to deduct, as an adjustment to income on Form 1040, line 35, rather than as a miscellaneous itemized deduction, attorney fees and court costs for actions involving a claim of unlawful discrimination, a claim against the U. S. Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act. However, the amount you can deduct on Form 1040, line 35, is limited to the amount you included in gross income in 2004 for that claim. The rest of your attorney fees and court costs for this type of claim are deductible as a miscellaneous itemized deduction subject to the 2% limit. See Publication 525 for more information.

Taxmap/pubs/p529-000.htm#TXMP01ff70c7 Loss on Deposits

Loss on Deposits

If you can reasonably estimate the amount of your loss on money you have on deposit in a financial institution that becomes insolvent or bankrupt, 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.

1. 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.
2. 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.

Taxmap/pubs/p529-000.htm#TXMP51cbd1d2 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.

Taxmap/pubs/p529-000.htm#TXMP791014e0 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.

Taxmap/pubs/p529-000.htm#TXMP424a17ab 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.

Taxmap/pubs/p529-000.htm#TXMP229190a8 Loss on IRA

Loss on IRA

If you have a loss on your traditional IRA (or Roth IRA) investment, you can deduct the loss as a miscellaneous itemized deduction subject to the 2% limit, but only when all the amounts in all your traditional IRA (or Roth IRA) accounts have been distributed to you and the total distributions are less than your unrecovered basis. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

Taxmap/pubs/p529-000.htm#TXMP527248f2 Repayments of Income

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.

Taxmap/pubs/p529-000.htm#TXMP3f10c9c5 Repayments of Social Security Benefits

Repayments of Social Security Benefits

If the total of the amounts in box 5 (net benefits for 2004) 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 2004 (box 4) is more than the gross amount of benefits paid to you in 2004 (box 3).

If the deduction is more than $3,000, you will have to use a special computation to figure your tax. See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for additional information.

Taxmap/pubs/p529-000.htm#TXMP129910d6 Safe Deposit Box Rent

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.

Taxmap/pubs/p529-000.htm#TXMP6238bb12 Service Charges on Dividend   Reinvestment Plans

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:

1. Holding shares acquired through a plan,
2. Collecting and reinvesting cash dividends, and
3. Keeping individual records and providing detailed statements of accounts.

Taxmap/pubs/p529-000.htm#TXMP7028cf0c Trustee's Administrative Fees for IRA

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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