For 2018–2025, the Tax Cuts and Jobs Act (TCJA) eliminates write-offs for miscellaneous itemized expenses that were previously subject to the 2%-of-adjusted-gross-income (AGI) deduction threshold. That meant your total miscellaneous expenses had to exceed 2% of AGI or you got no write-off. If they did exceed the threshold, you could only deduct the excess. (AGI is the number on the last line of your Form 1040; it includes all taxable income items and certain write-offs such as deductible IRA contributions and self-employed health insurance premiums.)
Because most folks did not have enough miscellaneous expenses to exceed the 2%-of-AGI deduction threshold, this now-disallowed write-off never got much attention. But it was an important tax benefit for some people. If you are one of them, you need to know about the negative impact of the new law.
List of affected miscellaneous expenses
Expenses that can no longer be written off as miscellaneous itemized deductions include the following.
• Tax-related expenses
• Tax preparation expenses
• Tax advice fees
• Other fees and expenses incurred in connection with the determination, collection, or refund of any tax
Expenses related to investments and production of taxable income
• Investment advisory fees and expenses
• Clerical help and office rent for office used to manage investments
• Expenses for home office used to manage investments
• Depreciation of computer and electronics used to manage investments
• Fees to collect interest and dividends
• Your share of investment expenses passed through to you from partnership, LLC, or S corporation
• Safe deposit box rental fee for box used to store investment items and documents
• Other investment-related fees and expenses
• Hobby expenses (limited to hobby income)
• IRA trustee/custodian fees if separately billed to you and paid by you as the account owner
• Loss on liquidation of traditional IRA or Roth IRA
• Bad debt loss for ill-fated loan made to employer to preserve your job
• Damages paid to former employer for breach of employment contract
Unreimbursed employee business expenses
• Education expenses related to your work as an employee
• Travel expenses related to your work as an employee
• Passport fees for business trip
• Professional society dues
• Professional license fees
• Subscriptions to professional journals and trade publications
• Home office used regularly and exclusively in your work as an employee and for the convenience of your employer
• Depreciation of computer that your employer requires you to use
• Tools and supplies used in your work as an employee
• Union dues and expenses
• Work clothes and uniforms if required for your work and if not suitable for everyday use
• Legal fees related to your work as an employee
• Job search expenses to seek new employment in your current profession or occupation
The most important affected expenses
As you can see, the list of now-disallowed expenses is long, but the ones that are most likely to matter to you are these three.
1. Unreimbursed Employee Business Expenses: Lots of folks pay relatively large amounts out of their own pockets to go back to school to improve their resumes. If the education maintains or improves skills used in your current job or profession, you could claim the cost as an unreimbursed employee business expense under prior law. For example, the cost to obtain an MBA degree would often qualify. Another common unreimbursed employee business expense is the cost of using your own car for business-related travel. Since you can’t deduct that expense anymore, try negotiating with your employer to cover it through tax-free reimbursements under a so-called accountable plan.
2. Tax and Investment Related Expenses: They are incurred by many folks and could be significant enough to get you over the prior-law 2%-of-AGI deduction threshold when combined with other miscellaneous itemized expenses.
3. Hobby-Related Expenses: Under prior-law you could treat hobby-related expenses up to the amount of income from the hobby as a miscellaneous itemized deduction. These expenses were often big enough to clear the 2%-of-AGI deduction threshold when combined with other miscellaneous itemized expenses. Under the new law, as under prior law, you still have to report 100% of hobby income on your return. But for 2018-2025, you can no longer deduct any of your hobby-related expenses. Ouch.
You can still deduct some miscellaneous expenses
Certain other miscellaneous itemized expenses were not subject to the 2%-of-AGI deduction threshold under prior law. For your 2017 Form 1040, those expenses are reported on Line 28 of Schedule A. The TCJA did not eliminate itemized deductions for these expenses. They include gambling losses to the extent of gambling winnings and amortizable bond premiums.
The bottom line
The new tax law giveth and the new tax law taketh away. For most individuals, the giveth comfortably exceeds the taketh away, but it’s not all good news for everybody.