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Chapter 30. Miscellaneous Deductions

Introduction

This chapter explains the expenses you can claim as miscellaneous itemized
deductions on Schedule A (Form 1040). It will cover the following topics in
this order:

∙  Deductions subject to the 2% limit,

∙  Deductions not subject to the 2% limit,

∙  Expenses you cannot deduct, and

∙  How to report your deductions.

Expenses in each category are first presented in a convenient list. Following
each list is information about those items that need more explanation.

Related publications and forms.

This chapter refers to several publications and forms that you may need.
The list of forms does not include Forms 1040, 1040A, and 1040EZ. For more
information, you may want to order the following:

    Publication 463, Travel, Entertainment, and Gift Expenses

    Publication 525, Taxable and Nontaxable Income

    Publication 529, Miscellaneous Deductions

    Publication 534, Depreciation

    Publication 535, Business Expenses

    Publication 587, Business Use of Your Home

    Publication 917, Business Use of a Car

    Publication 946, How To Begin Depreciating Your Property

    Form 2106, Employee Business Expenses

Deductions Subject To the 2% Limit

You can deduct the following expenses only as miscellaneous itemized
deductions on Schedule A (Form 1040). You can claim them only to the extent
that the total you claim is more than 2% of your adjusted gross income.
This means you figure your deduction by subtracting 2% of your adjusted
gross income from the total amount of these expenses. You can find your
adjusted gross income on line 32, Form 1040.

You apply the 2% limit after you apply any other deduction limit (such as
the 80% limit on business-related meals and entertainment).

Deductions subject to the 2% limit are discussed in the two general categories
that are shown on Schedule A (Form 1040): unreimbursed employee expenses and
other expenses. But see Chapter 28 if you have unreimbursed employee business
expenses for travel, transportation, entertainment, or gifts.

Exception for performing artists. If you are a qualifying performing artist,
you may be able to deduct your employee business expenses as an adjustment to
gross income rather than as a miscellaneous itemized deduction. See Special
Rules in Chapter 28 if you need more information about this exception.

List of Unreimbursed Employee Business Expenses

∙  Business liability insurance premiums

∙  Damages paid to former employer for breach of employment contract

∙  Depreciation on a home computer or cellular telephone your employer
   requires you to use in your work

∙  Dues to chamber of commerce if membership helps you do your job

∙  Dues to professional societies

∙  Education that is employment related (see Chapter 29)

∙  Home office or part of home used regularly and exclusively in work

∙  Job search expenses in your present occupation

∙  Laboratory breakage fees

∙  Malpractice insurance premiums

∙  Medical examinations required by employer

∙  Occupational taxes you paid

∙  Passport for business trip

∙  Repayment of income aid payment

∙  Research expenses of a college professor

∙  Subscriptions to professional journals and trade magazines related
   to your work

∙  Tools and supplies used in your work

∙  Travel, transportation, entertainment, and gift expenses that are
   unreimbursed and related to your work (see Chapter 28)

∙  Union dues and expenses

∙  Work clothes and uniforms if required and not suitable for everyday use

Business Liability Insurance

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

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.

Depreciation on Home Computers or Cellular Telephones

If you purchased a home computer or cellular telephone, you can claim a
depreciation deduction if you use these items in your work as an employee
and you meet the following tests. Your use of these items must be:

1)  For the convenience of your employer, and

2)  Required as a condition of your employment.

If you use your computer to produce income other than from a business, such
as from investments, see Depreciation on Home Computer, under List of Other
Expenses, later.

For more information about the rules and exceptions to the rules affecting
the allowable deductions for a home computer or cellular telephone, see
Depreciation on Home Computers or Cellular Telephones in Publication 529.

Reporting and recordkeeping. To claim the depreciation deduction for these
items, you must complete Part V of Form 4562, Depreciation and Amortization,
and attach it to your tax return. Also, you must maintain records to prove
your percentage of business use.

For more information about depreciation (including the section 179
deduction) and recordkeeping requirements, get Publication 946, How To
Begin Depreciating Your Property, or Publication 534, Depreciation.

Dues to Chamber of Commerce

You can deduct dues paid to a chamber of commerce or similar organization if
membership helps you carry out the duties of your job.
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 and depreciation
expenses on your home. You cannot deduct any part of your personal expenses
that are for family household purposes.

Requirements for claiming the deduction. You may deduct certain expenses for
operating a part of your home only if that part of your home is used regularly
and exclusively as:

1)  Your principal place of business for any trade or business in which you
    engage, or

2)  A place to meet or deal with your patients, clients, or customers in the
    normal course of your trade or business.

You may also deduct certain expenses of operating a separate structure not
attached to your home, if you use it regularly and exclusively for your trade
or business.

In addition, if the regular and exclusive business use is for your work as an
employee, the use must be for the convenience of your employer and not just
appropriate and helpful in your job.

If you claim a home office deduction based on meeting with patients, clients,
or customers, you must physically meet with them on your premises, and your
meetings with them must be substantial and integral to the conduct of your
business. Occasional meetings and telephone calls are insufficient.

You can have a principal place of business for each trade or business in which
you engage. For example, as a teacher, your principal place of business for
teaching is the school. If you also engage in a retail sales business and use
part of your home as your principal place of business for retail selling,
expenses for this business use of your home may be deductible.

You cannot deduct any operating or depreciation expenses for the use of your
home if the use is not in a trade or business. For example, you cannot deduct
these expenses if you use a part of your home, even though regularly and
exclusively, to read financial periodicals and reports, clip bond coupons,
and perform similar investment activities on your own behalf, because these
activities are not a trade or business.

The use of a part of your home for both personal and business purposes does
not meet the exclusive use test, and you cannot deduct expenses for business
use. If, for example, you use the den of your home to write legal briefs,
prepare tax returns, or perform similar activities, as well as for personal
purposes, you cannot deduct any expenses for the business use of that part
of your home.

For more information, see Publication 587, Business Use of Your Home.

How to figure the deduction. To figure the percentage of your home used for
business, compare the square feet of space used for business to the total
square feet in your home. Or, if the rooms in your home are approximately the
same size, you may compare the number of rooms used for business to the total
number of rooms in your home. If neither of these methods applies to your
situation, use any other reasonable method. Generally, you figure the business
part of your expenses by applying the percentage to the total of each expense.

Limit on the deduction. The deduction for the business use of your home is
limited to the gross income from that business use minus the sum of:

1)  The business percentage of the otherwise deductible real estate taxes and
    casualty and theft losses, and

2)  The expenses for your business that are not attributable to the use of
    your home (for example, salaries or supplies).

Repairs. You can deduct the cost of painting and repairing rooms that are
used only for business purposes. You cannot deduct the costs of painting and
repairing rooms used for other purposes.

You can deduct part of the cost of painting the outside of your home or
repairing the roof based on the percentage of business use. However, you
cannot deduct expenses for lawn care and landscaping.

Depreciation. You can deduct depreciation on the part of your home used for
business.

Home leased to employer. If you lease any part of your home to your employer,
you cannot claim home office expenses for any period you use any part of your
home to perform services for your employer.

How to report. If you are an employee, you generally report your expenses
for the business use of your home (insurance, maintenance, utilities,
depreciation) on Form 2106, if you are required to file that form. You then
carry over the amount on line 11 of Form 2106 to line 19 of Schedule A (Form
1040). If you are not required to file Form 2106, enter the amount directly
on line 19 of Schedule A.

Include the home office expenses for real estate taxes and casualty and theft
losses on the appropriate lines of Schedule A, along with your deductible
nonbusiness expenses in those categories.

For more information about how to claim miscellaneous deductions, see How to
Report, later in this chapter.

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

For more information on using your home in your work and how to compute your
allowable deduction, get Publication 587.

Job Search Expenses

You may be able to 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 you are looking for a job in a new occupation, even
if you get the job.

If you are unemployed, the kind of work you did for your past employer is your
occupation. If there is a substantial break between the time of your past job
and your looking for a new one, you cannot deduct your expenses.

You cannot deduct your expenses if you are seeking employment for the first
time, even if you get the job.

Employment agency fees. You can deduct employment agency fees you pay in
looking for a new job in your present occupation. 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 to the extent of your tax benefit in the
earlier year (which is explained under Recoveries in Chapter 13). If your
employer pays the fees directly to the employment agency and you were not
responsible for them, you do not include them in your gross income.

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

Travel and transportation expenses. If you travel to an area and, while there,
you look for a new job in your present occupation and also engage in personal
activities, you may be able to deduct travel expenses to and from this area.
To be deductible, the trip must be 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.

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

Repayment of Income Aid Payment

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. An "income aid
payment" is one that is received under an employer's plan to aid employees
who lose their jobs due to lack of work.

Research Expenses of a College Professor

If you are a college professor, you can deduct research expenses, including
travel expenses, for teaching, lecturing, or writing and publishing on
subjects that relate directly to the field of your teaching duties.

Tools Used in Your Work

Generally, amounts you spend for tools used in your work are deductible
expenses if the tools wear out and are thrown away within one year from the
date of purchase. The cost of tools expected to last more than a year can
be depreciated. For more information about depreciation, get Publication 946.

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 such contributions.

Work Clothes and Uniforms

You can deduct the cost and upkeep of work clothes only if you must wear them
as a condition of your employment and they are not suitable for everyday wear.
To qualify for the deduction, both conditions must be met. It is not enough
that you wear distinctive clothing; it 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 required to wear uniforms which qualify 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 if they are not suitable for ordinary use.

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.

List of Other Expenses

You can deduct certain other expenses as miscellaneous itemized deductions
subject to the 2% of adjusted gross income limit. You claim them on line 20
of Schedule A (Form 1040). These are expenses you pay:

1) To produce or collect income,

2) To manage, conserve, or maintain property held for producing income, or

3) To determine, contest, pay, or claim a refund of any tax.

The expenses must be directly related to the income or income-producing
property, and the income must be taxable to you.

∙  Appraisal fees for a casualty loss or charitable contribution

∙  Clerical help and office rent in caring for investments

∙  Depreciation on home computers to the extent used for investments

∙  Dividend reinvestment plan service charges

∙  Fees to collect interest and dividends

∙  Hobby expenses, but generally not more than hobby income

∙  Indirect miscellaneous deductions passed through grantor trusts,
   partnerships, and S corporations

∙  Investment fees and expenses

∙  Legal fees related to producing or collecting taxable income, doing
   or keeping your job, 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

∙  Tax advice and preparation fees, including fees for electronic filing

∙  Trustee's fees for your IRA, if separately billed and paid

Appraisal Fees

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

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 to the extent you use it to
produce income (for example, managing your investments that produce taxable
income). However, certain limits may apply, as explained under Partial
Business Use of Listed Property in Publication 534. If you work as an employee
and use the computer in that work, see Depreciation on Home Computers or
Cellular Telephones under List of Unreimbursed Employee Business Expenses,
earlier.

Dividend Reinvestment Plan Service Charges

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.

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 unless you
are a dealer in securities. You must offset the fee against the selling price.

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 Activity not for profit in Chapter 13 under Miscellaneous
Taxable Income.

Indirect Deductions of Pass-Through Entities (Partnerships and S Corporations)

Deductions of pass-through entities are passed through to the partners or
shareholders. If the deductions are miscellaneous itemized deductions,
they are generally subject to the 2% limit.

Information returns. You should receive information returns from these
entities. Partnerships and S corporations issue Schedule K─1, which lists the
items and amounts you must report, and identifies the tax return schedules
and lines to use.

Example. You are a member of an investment club partnership that is formed
solely to invest in securities. 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. You should receive a copy of Schedule K─1 (Form
1065), Partner's Share of Income, Credits, Deductions, Etc.

Allocated expenses of mutual funds. The allocable investment expenses of
nonpublicly-offered mutual funds are subject to the 2% limit. Those of
publicly-offered mutual funds are not subject to the 2% limit.

Nonpublicly-offered mutual funds. These funds will send you a Form 1099─DIV,
or 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.

Publicly-offered mutual funds. These funds will send you a Form 1099─DIV, or
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. A "publicly-offered" mutual fund is one that 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.

Contact your mutual fund if you are not sure if your fund is publicly-offered.

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 to produce 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. You can also deduct
    legal expenses to collect taxable alimony.

Loss on Deposits in an Insolvent or Bankrupt Financial Institution

For information on whether, and if so how, you may deduct a loss on your
deposit in a qualified financial institution, see Loss on deposits in an
insolvent or bankrupt financial institution in Chapter 15.

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 is more than $3,000, see Repayments Under Claim of Right under
Deductions Not Subject To the 2% Limit, later.

Repayments of Social Security Benefits

For information on how to deduct your repayments of certain social security
benefits, see Repayments More Than Gross Benefits in Chapter 12.

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 or other
personal items or for tax-exempt securities.

Tax Preparation Fees

You can usually deduct tax preparation fees in the year you pay them. Thus,
on your 1992 return, you can deduct fees paid in 1992 for preparing your 1991
return. This includes any fee you paid for electronic filing of your return.

Trustee's Administrative Fees for IRA

You can deduct an IRA trustee's administrative fees that are billed separately
and that you paid in connection with your individual retirement arrangement
(IRA), if they are ordinary and necessary. These fees do not include capital
expenditures such as brokers' commissions that you must add to the cost of
securities you buy through brokers. These fees also do not include disguised
IRA contributions. These trustee's fees are not subject to the annual dollar
limit on contributions you can make to an IRA. Deduct them on line 20,
Schedule A (Form 1040), not with your IRA deduction. For more information
about IRAs, see Chapter 18.

Deductions Not Subject To the 2% Limit

The following expenses are deductible as miscellaneous itemized deductions.
However, they are not subject to the 2% limit. Report these expenses on line
25, Schedule A (Form 1040).

List of Deductions Not Subject To the 2% Limit

∙  Amortizable premium on taxable bonds

∙  Federal estate tax on income in respect of a decedent

∙  Gambling losses to the extent of gambling winnings

∙  Impairment-related work expenses of persons with disabilities

∙  Repayments under a claim of right

∙  Unrecovered investment in a pension

Amortizable Premium on Taxable Bonds

Bond premium is the amount you pay for bonds that is greater than the face
value of the bonds. You can choose to amortize the premium on taxable bonds.

For a bond purchased before October 23, 1986, the amortization of the premium
is a miscellaneous itemized deduction not subject to the 2% limit.

For a bond purchased after October 22, 1986, and before January 1, 1988, the
amortization of the premium is investment interest expense subject to the
investment interest limit, unless you choose to treat it as an offset to
interest income on the bond.

For a bond acquired after December 31, 1987, the amortization of the premium
is an offset to interest income on the bond rather than a separate interest
deduction item.

For more information, see Bond Premium Amortization in Publication 550,
Investment Income and Expenses.

Federal Estate Tax on Income in Respect of a Decedent

You can deduct the federal estate tax attributable to income in respect of
a decedent that you as a beneficiary include in your gross income. Income
in respect of the decedent is gross income that the decedent had a right to
receive, could have received had death not occurred, and that was not properly
includible in the decedent's final income tax return. See Chapter 4 for more
information.

Gambling Losses to the Extent of Gambling Winnings

You cannot deduct gambling losses that are more than the gambling winnings
you report on line 22, Form 1040. You must keep an accurate diary or similar
record of your losses and winnings, and you must be able to prove the amounts
of your winnings and losses by receipts, tickets, or statements. For more
information about gambling winnings, see Gambling winnings in Chapter 13.

Impairment-Related Work Expenses

If you have a physical or mental disability that limits your being employed,
or substantially limits one or more of your major life activities, such as
performing manual tasks, walking, speaking, breathing, learning, and working,
your impairment-related work expenses are deductible.

Impairment-related work expenses are allowable business expenses for attendant
care services at your place of work and other expenses in connection with your
place of work that are necessary for you to be able to work.

If you are an employee, you enter impairment-related work expenses on Form
2106. You enter the amount from line 11 of Form 2106 on Schedule A (Form
1040), line 25, instead of on line 19 of Schedule A.

Repayments Under Claim of Right

If you had to repay more than $3,000 that you included in your income in an
earlier year because at the time you thought you had an unrestricted right to
it, you may be able to deduct the amount you repaid, or take a credit against
your tax. See Repayments in Chapter 13 for more information.

Unrecovered Investment in Pension

If a retiree had contributed to the cost of a pension or annuity, a part of
each payment received can be excluded from income as a tax-free return of
the retiree's investment. If the retiree dies before the entire investment
is returned, any unrecovered investment is allowed as a deduction on the
retiree's final return. See Chapter 11 for more information about the tax
treatment of pensions.

Nondeductible Expenses

You cannot deduct the following expenses.

List of Nondeductible Expenses

∙  Adoption expenses

∙  Burial or funeral expenses, including the cost of a cemetery lot

∙  Campaign expenses

∙  Capital expenses

∙  Check-writing fees

∙  Commuting expenses

∙  Fees and licenses, such as car licenses, marriage licenses, and dog tags

∙  Expenses to influence general public on legislation or elections

∙  Fines and penalties, such as parking tickets

∙  Health spa expenses

∙  Hobby losses

∙  Home repairs, insurance, and rent

∙  Illegal bribes and kickbacks - See Bribes and kickbacks in Chapter 13
   of Publication 535

∙  Life insurance premiums

∙  Losses from the sale of your home, furniture, personal car, etc.

∙  Lost or misplaced cash or property - But see Mislaid or lost property
   under Theft in Chapter 26

∙  Lunches with co-workers

∙  Meals while working late

∙  Personal disability insurance premiums

∙  Personal legal expenses

∙  Personal, living, or family expenses

∙  Political contributions

∙  Professional accreditation fees

∙  Professional reputation, expenses to improve

∙  Relief fund contributions

∙  Residential telephone line

∙  Stockholders' meeting, expenses of attending

∙  Tax-exempt income expenses

∙  Voluntary unemployment benefit fund contributions

∙  Wristwatches

Adoption Expenses

You cannot deduct the expenses you paid to adopt a child.

Campaign Expenses

Campaign expenses of a candidate for any office, even if the candidate is
running for reelection to the office, are not deductible. These include
qualification and registration fees for primary elections.

Legal fees. You cannot deduct legal fees paid to defend charges that arise
from participation in a political campaign.

Check-Writing Fees

If you have a personal checking account, you cannot deduct fees charged by the
bank for the privilege of writing checks, even if the account pays interest.

Commuting Expenses

You cannot deduct commuting expenses to and from your main or regular place of
work. If you haul tools, instruments, etc., in your car to and from work, you
can deduct only additional costs, such as the cost of renting a trailer that
is towed by your vehicle.

Expenses to Influence Legislation

You cannot deduct gifts or amounts spent to influence the general public on
legislative matters, elections, or referenda.

Fines or Penalties

You cannot deduct fines or penalties you pay to a governmental unit for
violating a law. These include parking tickets, tax penalties, and penalties
deducted from teachers' paychecks after an illegal strike.

Health Spa Expenses

You cannot deduct health spa expenses, even if there is a job requirement
to stay in excellent physical condition, such as might be required of a law
enforcement officer.

Homeowners' Insurance Premiums

You cannot deduct insurance premiums that you pay or that are placed in
escrow for your home, such as fire and liability or mortgage insurance.

Life Insurance Premiums

You cannot deduct premiums you pay on your life insurance. Premiums you pay
on life insurance policies assigned to your ex-spouse may be deductible as
alimony.

Lunches with Co-Workers

You cannot deduct the expenses of lunches with co-workers.

Meals While Working Late

You cannot deduct the cost of meals while working late, except while traveling
away from home.

Personal Legal Expenses

You cannot deduct personal legal expenses such as those for the following:

1)  Custody of children,

2)  Breach of promise (to marry) suit,

3)  Civil or criminal charges resulting from a personal relationship,

4)  Damages for personal injury,

5)  Preparation of a will, and

6)  Property claims or property settlement in a divorce.

You cannot deduct these expenses even though a result of the legal proceeding
is the loss of income-producing property.

Political Contributions

You cannot deduct contributions made to a political candidate, a campaign
committee, or a newsletter fund.

Professional Accreditation Fees

You cannot deduct professional accreditation fees such as the following:

1)  Accounting certificate fees paid for the initial right to practice
    accounting,

2)  Bar exam fees and incidental expenses in securing admission to the bar,
    and

3)  Medical and dental license fees paid to get initial licensing.

Professional Reputation

You cannot deduct expenses of radio and TV appearances to increase your
personal prestige or establish your professional reputation.

Relief Fund Contributions

You cannot deduct contributions paid to a private plan that pays benefits
to any covered employee who cannot work because of any injury or illness
not related to the job.

Residential Telephone Service

You cannot deduct any charge (including taxes) for basic local telephone
service for the first telephone line to your residence, even if it is used
in a trade or business.

Stockholders' Meetings

You cannot deduct transportation and other expenses you pay to attend
stockholders' meetings of companies in which you own stock but have no other
interest. You cannot deduct these expenses even if you are attending the
meeting to get information that would be useful in making further investments.

You cannot deduct any expenses for attending a convention, seminar, or similar
meeting for investment purposes.

Tax-Exempt Income Expenses

You cannot deduct expenses to produce tax-exempt income. You cannot
deduct interest on a debt incurred or continued to buy or carry tax-exempt
securities.

If you have expenses to produce both taxable and tax-exempt income, but
you cannot identify the expenses that produce each type of income, you must
allocate the expenses to determine the amount that you can deduct.

Example. During the year you received taxable interest of $4,800 and tax-exempt
interest of $1,200. In earning this income, you had expenses of $500 during
the year. If you cannot identify the amount of each expense item that is for
each income item, you must allocate 80% ($4,800/$6,000) of the expense to
taxable interest and 20% ($1,200/$6,000) to tax-exempt interest. You can
deduct, subject to the 2% limit, expenses of $400 (80% of $500).

Voluntary Unemployment Benefit Fund Contributions

You cannot deduct voluntary unemployment benefit fund contributions you make
to a union fund or a private fund. However, contributions are deductible as
taxes if state law requires you to make them to a state unemployment fund
that covers you for the loss of wages from unemployment caused by business
conditions.

How to Report

You must itemize deductions to be able to claim miscellaneous deductions on
Schedule A (Form 1040).

If you have unreimbursed employee business expenses, generally you must first
complete Form 2106. See Chapter 28 for a more detailed explanation of whether
you must file Form 2106.

Carry over the amount of unreimbursed employee business expenses from line 11
of Form 2106 to line 19 of Schedule A (Form 1040). Attach the completed Form
2106 to Form 1040.

If you don't have to fill out Form 2106, just list the type and amount of your
unreimbursed employee business expenses on the dotted line for line 19 of
Schedule A (Form 1040). Enter one total on line 19.

Claim any other miscellaneous deductions subject to the 2% limit on line 20
of Schedule A (Form 1040).

If you have miscellaneous deductions not subject to the 2% limit, claim these
amounts on line 25 of Schedule A (Form 1040).



Part VI. Figuring Your Taxes and Credits

The chapters in this part explain how to figure your tax and how to figure the
tax of certain children who have more than $1,200 of investment income. They
also discuss tax credits. Credits, unlike deductions, are subtracted directly
from your tax and therefore reduce your tax dollar for dollar. There are tax
credits for the lower-income worker with a child, for the elderly or for the
disabled, for the expense of having your child or disabled dependent cared
for so that you can work, and for other kinds of expenses.