31 Oct What expenses are deductible?

Q. I know you can deduct certain costs for professional help, like accountants and financial planners. Who else can you deduct?
— Trying to save

A. There are plenty of deductions you can take — as long as it adds up to enough.

Deducting costs of professional help such as accountants and financial planners would be part of your miscellaneous itemized deductions, said Gail Rosen, a Martinsville-based certified public accountant.

“These type of expenses may result in a tax deduction if you itemized your deductions, depending on your adjusted gross income (AGI) and the total of all your miscellaneous items,” she said.

To determine whether you qualify, Rosen said, you first compute your total of all expenses that fall into the miscellaneous deduction categories. This amount is deductible as an itemized deduction but only if — and to the extent — it is greater than 2 percent of your AGI, she said.

Rosen notes that deduction for miscellaneous itemized deductions aren’t allowed for purposes of the alternative minimum tax (AMT).

“Miscellaneous itemized deductions include tax return preparation costs,” she said. “This category includes the fee to have your tax return prepared as well as other costs related to determining your taxes, such as appraisal costs or legal fees.”

Investment advisors fees are also deductible, she said, and you may also include investment subscriptions costs, the cost of a safe deposit box, IRA or Keogh custodial fees if paid by cash outside the account and online services to manage your investments.

“You can deduct your transportation to your broker’s and accountant’s office and any related postage costs,” she said. “If you incur deductible expenses in connection with your employment or looking for a job, they are also miscellaneous deduction items.”

In a business, you can deduct all ordinary and necessary business expenses to operate your business, said Ken Bagner, a certified public accountant with Sobel and Co. in Livingston.

He said the IRS defines this very broadly, allowing businesses to have flexibility to deduct expenditures.

Bagner said an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

But, he said, you cannot deduct personal expenditures, expenses related to inventory (which are deducted when sold) and capital expenses. These are expenses that typically have a useful life greater than one year past year-end, and these expenses are depreciated/amortized over time, he said.

“Since expense deductions are broadly defined you can deduct a myriad of expenditures,” he said. “For example, if you purchase coffee to be utilized by your employees, customers, etc., it is an ordinary expenditure that is typical for business.”

Bagner said taking clients out to a nice dinner to work on winning a new account would be an ordinary expense for your business.

Given that there are so many examples of expenses that can qualify, when in doubt, Bagner said, you shouldn’t be shy about asking your CPA if you can deduct the expenditure.

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This post was first published in October 2016.