Legal Definitions - miscellaneous itemized deduction

A miscellaneous itemized deduction refers to a category of expenses that taxpayers could previously subtract from their taxable income when filing their federal income tax returns. These deductions were available to individuals who chose to "itemize" their deductions rather than taking the standard deduction. A key characteristic of most miscellaneous itemized deductions was that they were subject to a 2% Adjusted Gross Income (AGI) floor, meaning taxpayers could only deduct the amount of these expenses that exceeded 2% of their AGI.

It is important to note that the Tax Cuts and Jobs Act of 2017 suspended most miscellaneous itemized deductions subject to the 2% AGI floor for tax years 2018 through 2025. Therefore, while the concept is important for understanding past tax law, these specific deductions are generally not available to taxpayers under current law.

Here are examples illustrating what historically qualified as miscellaneous itemized deductions:

• Example 1: Unreimbursed Employee Business Expenses

  Imagine a software engineer who frequently travels for work-related conferences and training sessions. Although their employer covers some travel costs, the engineer personally pays for certain professional development courses and specialized software subscriptions that are not reimbursed. Historically, these unreimbursed expenses, if ordinary and necessary for their job, could be claimed as miscellaneous itemized deductions. The engineer would add up all such costs, and if the total exceeded 2% of their AGI, the amount above that threshold could be deducted. This allowed taxpayers to reduce their taxable income for essential work-related expenditures not covered by their employer. Under current tax law (2018-2025), these specific deductions are generally no longer permitted.

• Example 2: Tax Preparation Fees

  Consider a small business owner who hires a certified public accountant (CPA) each year to prepare their complex personal and business tax returns. The fees paid to the CPA for this service were, in the past, considered a miscellaneous itemized deduction. The business owner would include these fees with other miscellaneous expenses, and only the portion exceeding 2% of their AGI could be deducted. This provided a tax benefit for individuals who incurred costs to comply with tax regulations. This deduction is also suspended for the 2018-2025 tax years.

• Example 3: Investment Expenses

  Suppose an individual has a substantial investment portfolio managed by a financial advisor, for which they pay annual advisory fees. Additionally, they rent a safe deposit box at a bank to securely store important stock certificates and other investment documents. Previously, these types of expenses—such as investment advisory fees, custodial fees for individual retirement accounts (IRAs) if separately billed, and the cost of a safe deposit box used for investment documents—could be claimed as miscellaneous itemized deductions. Like other items in this category, they were subject to the 2% AGI floor. These deductions are currently suspended under the Tax Cuts and Jobs Act of 2017.