Miscellaneous deductions fall into two categories: those limited to the extent the total exceeds 2% of AGI and those with no limitation. The following are some common miscellaneous deductions that are not subject to the 2% of AGI limitation:

Common miscellaneous deductions that are subject to the 2% limitation include unreimbursed employee business expenses (in the absence of and within an accountable plan), investment expenses, and other general miscellaneous deductions (e.g., tax return preparation fees, union dues, job hunting expenses, and professional subscriptions).

Investment expenses are deductible if directly related to taxable income or taxable income-producing property. Custodian fees are deductible, including fees for holding stocks and bonds, collecting and reinvesting cash dividends and interest, and record keeping and providing a statement of accounts. Fees paid to a broker or similar agent to collect taxable interest or dividends are deductible, but fees paid to a broker to acquire stocks or bonds are not deductible; they are added to the cost of the stocks or bonds. No deduction is allowed for investment expenses related to tax-exempt income.

Tax return preparation fees are deductible in the year paid. For example, fees paid in 2008 for preparation of a taxpayer’s 2007 tax return are deductible on the 2008 tax return. Included in this deduction are all regular fees for tax advice and audit representation and such items as appraisal expenses to establish the amount of a casualty loss or the fair market value of donated property.

Job hunting costs may be deductible, including travel and employment agency fees. To deduct job hunting expenses, the taxpayer must be seeking employment in a trade or business in which he or she is currently employed or, if unemployed, there can be no lack of continuity since the taxpayer’s last job. For example, the taxpayer cannot stop working, get a college degree, and then deduct the cost of job hunting after earning the degree. The deduction is allowed even if the attempt to obtain a new job is unsuccessful, but it is not allowed for first-time job seekers or taxpayers seeking employment in a new trade or business.

Hobby expenses are deductible as a miscellaneous itemized deduction. If a taxpayer enters into an activity without a profit motive, the tax law limits the amount of tax deductions available. Under the hobby loss provisions, a taxpayer may not show a loss from an activity that is not engaged in for profit. An example of an activity that might cause an airline pilot problems is breeding race horses. The IRS might contend that the activity was for personal enjoyment and disallow any loss for tax purposes. Despite the limitation on losses, any profits from hobbies must be included in taxable income.

Individual taxpayers (or S corporations) can avoid the hobby loss rules if they can show that the activity was conducted with the intent to earn a profit. To determine whether the activity was engaged in for profit, the IRS will look at these factors:

Tax law provides a presumption that if an activity shows a profit for three of the five previous years (two of the seven previous years for activities involving horses) the activity is engaged in for profit. For example, if an activity shows a profit for three of the previous five years, it is presumed to be a trade or business, and the IRS must establish that it is a hobby.

Go to Publication 17 and read Chapter 28: Miscellaneous Deductions.