Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemizeddeductions on Schedule A (Form 1040). You can claim the amount ofexpenses that is more than 2% of your adjusted gross income. Youfigure your deduction on Schedule A by subtracting 2% of your adjustedgross income from the total amount of these expenses. Your adjustedgross income is the amount on Form 1040, line 34. Generally, you apply the 2% limit after you apply any otherdeduction limit. For example, the 50% (or 55%) limit onbusiness-related meals and entertainment (discussed later underTravel, Transportation, Meal, Entertainment, and GiftExpenses) is applied before you subtract 2% of your adjustedgross income. Deductions subject to the 2% limit are discussed in the two generalcategories that are shown on Schedule A: unreimbursed employeeexpenses and other expenses (including taxpreparation fees). Impairment-related work expenses.If you have a physical or mental disability, certain expenses youincur that allow you to work may not be subject to the 2% limit. SeeImpairment-Related Work Expenses under Deductions NotSubject to the 2% Limit, later. Performing artists.If you are a qualified performing artist, you may be able to deductyour employee business expenses as an adjustment to income rather thanas a miscellaneous itemized deduction. See Performing Artistsunder Deductions Not Subject to the 2% Limit, later. State and local government officials paid on a fee basis.If you performed services as an employee of a state or localgovernment and you were paid in whole or in part on a fee basis, youcan claim your trade or business expenses in performing those servicesas an adjustment to gross income, rather than as a miscellaneousdeduction. See Officials Paid on a Fee Basis underDeductions Not Subject to the 2% Limit, later. UnreimbursedEmployee Expenses You can deduct only unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee,and Ordinary and necessary business expenses. An expense is ordinary if it is common and acceptedin your type of trade or business. An expense is necessaryif it is appropriate and helpful to your trade or business. You may be able to deduct the following items as unreimbursedemployee expenses. Business bad debt of an employee Business liability insurance premiums Damages paid to a former employer for breach of anemployment contract Depreciation on a computer or cellular telephone youremployer requires you to use in your work Dues to a chamber of commerce if membership helps you doyour job Dues to professional societies Education that is employment related Home office or part of your home used regularly andexclusively in your work Job search expenses in your present occupation Laboratory breakage fees Licenses and regulatory fees Malpractice insurance premiums Medical examinations required by an employer Occupational taxes Passport for a business trip Repayment of an income aid payment Research expenses of a college professor Subscriptions to professional journals and trade magazinesrelated to your work Tools and supplies used in your work Travel, transportation, entertainment, and gift expensesrelated to your work Union dues and expenses Work clothes and uniforms if required and not suitable foreveryday use Business Bad Debt A business bad debt is a loss from a debt created or acquired inyour trade or business. Any other worthless debt is a business baddebt only if there is a very close relationship between the debt andyour trade or business when the debt becomes worthless. A debt has a very close relationship to your trade or business ofbeing an employee if your main motive for incurring the debt is abusiness reason. Example.You make a bona fide loan to the corporation you work for. It failsto pay you back. You had to make the loan in order to keep your job.You have a business bad debt as an employee. More information.For more information on business bad debts, see chapter 14 inPublication 535. For information on nonbusiness bad debts, seeNonbusiness Bad Debts in Publication 550, InvestmentIncome and Expenses. Business Liability Insurance You can deduct insurance premiums you paid for protection againstpersonal liability for wrongful acts on the job. Damages for Breachof Employment Contract If you break an employment contract, you can deduct damages you payyour former employer if the damages are attributable to the pay youreceived from that employer. Depreciation on Computersor Cellular Telephones You can claim a depreciation deduction for a computer or cellulartelephone that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. For the convenience of your employer.This means that your use of the computer or cellular telephone isfor a substantial business reason of your employer. You must considerall facts in making this determination. Use of your computer orcellular phone during your regular working hours to carry on youremployer's business is generally for the convenience of your employer. Required as a condition of your employment.This means that you cannot properly perform your duties without thecomputer or cellular telephone. Whether you can properly perform yourduties without it depends on all the facts and circumstances. It isnot necessary that your employer explicitly requires you to use yourcomputer or cellular telephone. But neither is it enough that youremployer merely states that your use of the item is a condition ofyour employment. Example.You are an engineer with an engineering firm. You occasionally takework home at night rather than work late at the office. You own anduse a computer that is similar to the one you use at the office tocomplete your work at home. Since your use of the computer is not forthe convenience of your employer and is not required as a condition ofyour employment, you cannot claim a depreciation deduction for it. Which depreciation method to use.You generally must depreciate your computer or cellular telephoneusing the straight line method over the Alternative DepreciationSystem (ADS) recovery period. You cannot take a section 179 deductionfor the item or claim an accelerated depreciation deduction using theGeneral Depreciation System (GDS) unless you meet themore-than-50%-use test. (But if you use your computer in a homeoffice, see the exception below.) The section 179 deduction anddepreciation deductions using GDS and ADS are explained in Publication 946. More-than-50%-use test.You meet this test if you use the computer or cellular telephonemore than 50% in your work. If you meet this test, you can take asection 179 deduction for the item and you can claim accelerateddepreciation using GDS. Your use of a computer or cellular telephone in connection withinvestments (described later under Other Expenses) does notcount as use in your work. However, you can combine your investmentuse with your work use in figuring your depreciation deduction. For more information, see Predominant Use Test inchapter 4 of Publication 946. Exception for computer used in a home office.The more-than-50%-use test does not apply to a computer used onlyin a part of your home that meets the requirements described laterunder Home OfficeDe Koog hotel rooms. You can take a section 179 deduction andclaim accelerated depreciation using GDS for a computer used in aqualifying home office, even if you do not use it more than 50% inyour work. For more information on depreciation and section 179 deductions forcomputers and other items used in a home office, see BusinessFurniture and Equipment in Publication 587. Reporting your depreciation deduction.Use Part V of Form 4562, Depreciation and Amortization,to claim the depreciation deduction for a cellular telephone or for acomputer that you did not use only in your home office. Complete PartI of Form 4562 if you are claiming a section 179 deduction. Computer used in a home office.Use Part II of Form 4562 to claim the depreciation deduction for acomputer you placed in service during 1999 and used only in your homeoffice. Complete Part I of Form 4562 if you are claiming a section 179deduction. Do not use Form 4562 to claim the depreciation deduction for acomputer you placed in service before 1999 and used only in your homeoffice, unless you are otherwise required to file Form 4562. Instead,report the depreciation directly on the appropriate form. (SeeHow To Report, later.) But if you are otherwise required tofile Form 4562, report the depreciation in Part III. Files: You must maintain records to prove your percentage of business andinvestment use. Dues to Chambers of Commerceand Professional Societies You may be able to deduct dues paid to professional organizations(such as bar associations and medical associations) and to chambers ofcommerce and similar organizations, if membership helps you carry outthe duties of your job. Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. You cannot deduct dues paid to an organization if one ofits main purposes is to: Conduct entertainment activities for members or theirguests, or Provide members or their guests with access to entertainmentfacilities. Dues paid to airline, hotel, and luncheon clubs are not deductible.See Club Dues under Nondeductible Expenses,later. Lobbying and political activities.You may not be able to deduct that part of your dues that is forcertain lobbying and political activities. See NondeductibleExpenses, later. Work-Related Education You can deduct expenses you have for education, even if theeducation may lead to a degree, if the education meets at least one ofthe following two tests. The education maintains or improves skills required in yourpresent work. The education is required by your employer or the law tokeep your salary, status, or job, and the requirement serves abusiness purpose of your employer. If your education meets either of these tests, you can deductexpenses for tuition, books, supplies, laboratory fees, and similaritems, and certain transportation costs. Caution: You cannot deduct any qualified education expenses to the extentthey were taken into account in determining the amount of an educationtax credit or any other tax benefit for education. See Publication 970, Tax Benefits for Higher Education. Nondeductible educational expenses.You cannot deduct expenses you have for education, even though oneor both of the preceding tests are met, if the education: Is needed to meet the minimum educational requirements toqualify you in your work or business, or Will lead to qualifying you in a new trade orbusiness. Caution: If the education qualifies you for a new trade or business, youcannot deduct the educational expenses even if you do not intend toenter that trade or business. Travel as education.You cannot deduct the cost of travel that in itself constitutes aform of education. For example, a French teacher who travels to Franceto maintain general familiarity with the French language and culturecannot deduct the cost of the trip as an educational expense. More information.Get Publication 508, Tax Benefits for Work-Related Education,for a complete discussion of the deduction for work-relatededucational expenses. Home Office If you use a part of your home regularly and exclusively forbusiness purposes, you may be able to deduct a part of the operatingexpenses and depreciation of your home. You can claim this deduction for the business use of a part of yourhome only if you use that part of your home regularly andexclusively as: Your principal place of business for any trade or businessin which you engage, or A place to meet or deal with your patients, clients, orcustomers in the normal course of your trade or business. You can also claim this deduction for a separate structure notattached to your home (even if neither (1) nor (2) above applies) ifyou use it regularly and exclusively for your trade or business. The regular and exclusive business use must be for theconvenience of your employer and not just appropriate andhelpful in your job. Principal place of business.If you have more than one place of business, the business part ofyour home is your principal place of business if: You use it for administrative or management activities ofyour trade or business, and You have no other fixed location where you conductsubstantial administrative or management activities of your trade orbusiness. Otherwise, the location of your principal place of businessgenerally depends on the relative importance of the activitiesperformed at each location and the time spent at each location. More information.Get Publication 587 for more detailed information and a worksheetfor figuring the deduction. Files: You should keep recordsthat will give the informationneeded to figure the deduction according to these rules. Also keepcanceled checks or account statements and receipts of the expensespaid to prove the deductions you claim. Job Search Expenses You can deduct certain expenses you have in looking for a new jobin your present occupation, even if you do not get a new job. Youcannot deduct these expenses if: You are looking for a job in a new occupation, or There was a substantial break between the ending of yourlast job and your looking for a new one. Caution: You cannot deduct your expenses if you are seeking employment forthe first time. Employment and outplacement agency fees.You can deduct employment and outplacement agency fees you pay inlooking for a new job in your present occupation. Employer pays you back.If, in a later year, your employer pays you back for employmentagency fees, you must include the amount you receive in your grossincome up to the amount of your tax benefit in the earlier year. SeeRecoveries in Publication 525. Employer pays the employment agency.If your employer pays the fees directly to the employment agencyand you are not responsible for them, you do not include them in yourgross income. Rsum.You can deduct amounts you spend for typing, printing, and mailingcopies of a rsum to prospective employers if you are looking for anew job in your present occupation. Travel and transportation expenses.If you travel to an area and, while there, you look for a new jobin your present occupation, you may be able to deduct travel expensesto and from the area. You can deduct the travel expenses if the tripis primarily to look for a new job. The amount of time you spend onpersonal activity compared to the amount of time you spend in lookingfor work is important in determining whether the trip is primarilypersonal or is primarily to look for a new job. Even if you cannot deduct the travel expenses to and from an area,you can deduct the expenses of looking for a new job in your presentoccupation while in the area. If you use the standard mileage rate to figure your car expenses,use 32.5 cents per mile through March 31, 1999, and 31 cents per milethereafter. See Publication 463 for more information on travel and carexpenses. Licenses and Regulatory Fees You can deduct the amount you pay each year to state or localgovernments for licenses and regulatory fees for your trade, business,or profession. Occupational Taxes You can deduct an occupational tax charged at a flat rate by alocality for the privilege of working or conducting a business in thelocality. If you are an employee, you can claim occupational taxesonly as a miscellaneous deduction subject to the 2% limit; you cannotclaim them as a deduction for taxes elsewhere on your return. Repayment of Income Aid Payment An "income aid payment" is one that is received under anemployer's plan to aid employees who lose their jobs because of lackof work. If you repay a lump-sum income aid payment that you receivedand included in income in an earlier year, you can deduct therepayment. Research Expenses ofa College Professor If you are a college professor, you can deduct your researchexpenses, including travel expenses, for teaching, lecturing, orwriting and publishing on subjects that relate directly to the fieldof your teaching duties. You must have undertaken the research as ameans of carrying out the duties expected of a professor and withoutexpectation of profit apart from salary. However, you cannot deductthe cost of travel as a form of education. Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in yourwork if the tools wear out and are thrown away within 1 year from thedate of purchase. You can depreciate the cost of tools that have auseful life substantially beyond the tax year. For more informationabout depreciation, get Publication 946. Travel, Transportation, Meal, Entertainment, and GiftExpenses If you are an employee and have ordinary and necessarybusiness-related expenses for travel away from home, localtransportation, entertainment, and gifts, you may be able to deductthese expenses. Generally, you must file Form 2106 or 2106-EZ toclaim these expenses. Travel expenses.Travel expenses are those incurred while traveling away from homefor your employer. You can deduct travel expenses paid or incurred inconnection with a temporary work assignment. Generally, you cannotdeduct travel expenses paid or incurred in connection with anindefinite work assignment. Travel expenses may include: The cost of getting to and from your business destination(air, rail, bus, car, etc.), Meals and lodging while away from home, Taxi fares, Baggage charges, and Cleaning and laundry expenses. Travel expenses are discussed more fully in chapter 1 ofPublication 463. Temporary work assignment.A temporary work assignment is one that is expected to end within afixed and reasonably short time. If your assignment or job away fromhome in a single location is realistically expected to last (and doesin fact last) for 1 year or less, it is generally temporary. Indefinite work assignment.If your assignment or job away from home in a single location isrealistically expected to last for more than 1 year, it is indefinite,whether or not it actually lasts for more than 1 year. Caution: Employment that is initially temporary may become indefinite due tochanged circumstances. Federal crime investigation and prosecution.If you are a federal employee participating in a federal crimeinvestigation or prosecution, you are not subject to the 1-year rulefor deducting temporary travel expenses. This means that you may beable to deduct travel expenses even if you are away from your tax homefor more than one year. To qualify, the Attorney General must certify that you aretraveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services forthe investigation or prosecution of a federal crime. Local transportation expenses.Local transportation expenses are the expenses of getting from oneworkplace to another when you are not traveling away from home. Theyinclude the cost of transportation by air, rail, bus, taxi, and thecost of using your car. Work at two places in a day.If you work at two places in a day, whether or not for the sameemployer, you can generally deduct the expenses of getting from oneworkplace to the other. Temporary workplace.You can deduct expenses incurred in going between your home and atemporary workplace if at least one of the following applies. The workplace is outside the metropolitan areawhere you live and normally work. You have at least one regular workplace (otherthan your home) for the same trade or business. (If this applies, thedistance between your home and the temporary workplace does notmatter.) For this purpose, a workplace is generally considered temporary ifyour work there is realistically expected to last (and does in factlast) for 1 year or less. It is not temporary if your work there isrealistically expected to last for more than 1 year, even if itactually lasts for 1 year or less. If your work there initially isrealistically expected to last for 1 year or less, but later isrealistically expected to last for more than 1 year, the workplace isgenerally considered temporary until the date your realisticexpectation changes and not temporary after that date. For moreinformation, see chapter 4 of Publication 463. TaxTip: This definition of a temporary workplace is the result of a changemade in February 1999. Under the former definition, "temporary"meant irregular or short term (generally a matter of days or weeks).Because of this change, expenses that were considered nondeductiblecommuting expenses when you filed prior-year tax returns may now bedeductible. See chapter 4 of Publication 463 for information aboutamending returns affected by this change. Home office.You can deduct expenses incurred in going between your home and aworkplace if your home is your principal place of businessfor the same trade or business. (In this situation, whether the otherworkplace is temporary or regular and its distance from your home donot matter.) See Home Office, earlier, for a discussion onthe use of your home as your principal place of business. Meals and entertainment.Generally, you can deduct entertainment expenses (includingentertainment-related meals) only if they are directly relatedto the active conduct of your trade or business. However, theexpense only needs to be associated with the active conductof your trade or business if it directly precedes or follows asubstantial and bona fide business-related discussion. You can deduct only 50% of your business-related meal andentertainment expenses unless the expenses meet certain exceptions.You apply this 50% limit before you apply the2%-of-adjusted-gross-income limit. Meals when subject to "hours of service" limits.You can deduct 55% of your business-related meal expenses if youconsume the meals during or incident to any period subject to theDepartment of Transportation's "hours of service" limits. Youapply this 55% limit before you apply the 2%-of-adjusted-gross-incomelimit. This limit is 60% for 2000 and 2001, and it gradually increases to80% by 2008. Gift expenses.You can generally deduct up to $25 of business gifts you give toany one individual during the year. The following items do not counttoward the $25 limit. Identical, widely distributed items costing $4 or less thathave your name clearly and permanently imprinted. Signs, racks, and promotional materials to be displayed onthe business premises of the recipient. Additional information.Get Publication 463 for more information on travel, transportation,meal, entertainment, and gift expenses, and reimbursements for theseexpenses. Union Dues and Expenses You can deduct dues and initiation fees you pay for unionmembership. You can also deduct assessments for benefit payments to unemployedunion members. However, you cannot deduct the part of the assessmentsor contributions that provides funds for the payment of sick,accident, or death benefits. Also, you cannot deduct contributions toa pension fund even if the union requires you to make thecontributions. You may not be able to deduct amounts you pay to the union that arerelated to certain lobbying and political activities. SeeLobbying Expenses under Nondeductible Expenses,later. Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the followingtwo requirements are met. You must wear them as a condition of your employment. The clothes are not suitable for everyday wear. Caution: It is not enough that you wear distinctive clothing. The clothingmust be specifically required by your employer. Nor is it enough thatyou do not, in fact, wear your work clothes away from work. Theclothing must not be suitable for taking the place of your regularclothing. Examples of workers who may be able to deduct the cost and upkeepof work clothes are: delivery workers, firefighters, health careworkers, law enforcement officers, letter carriers, professionalathletes, and transportation workers (air, rail, bus, etc.). Musicians and entertainers can deduct the cost of theatricalclothing and accessories that are not suitable for everyday wear. However, work clothing consisting of white cap, white shirt orwhite jacket, white bib overalls, and standard work shoes, which apainter is required by his union to wear on the job, is notdistinctive in character or in the nature of a uniform. Similarly, thecosts of buying and maintaining blue work clothes worn by a welder atthe request of a foreman are not deductible. Protective clothing.You can deduct the cost of protective clothing required in yourwork, such as safety shoes or boots, safety glasses, hard hats, andwork gloves. Examples of workers who may be required to wear safety items are:carpenters, cement workers, chemical workers, electricians, fishingboat 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 onfull-time active duty in the armed forces. However, if you are anarmed forces reservist, you can deduct the unreimbursed cost of youruniform if military regulations restrict you from wearing it exceptwhile on duty as a reservist. In figuring the deduction, you mustreduce the cost by any nontaxable allowance you receive for theseexpenses. If local military rules do not allow you to wear fatigue uniformswhen you are off duty, you can deduct the amount by which the cost ofbuying and keeping up these uniforms is more than the uniformallowance you receive. If you are a student at an armed forces academy, you cannot deductthe cost of your uniforms if they replace regular clothing. However,you can deduct the cost of insignia, shoulder boards, and relateditems. You can deduct the cost of your uniforms if you are a civilianfaculty or staff member of a military school. Other Expenses You can deduct certain other expenses as miscellaneous itemizeddeductions subject to the 2%-of-adjusted-gross-income limit. These areexpenses you pay: To produce or collect income that must be included in yourgross income, To manage, conserve, or maintain property held for producingsuch income, or To determine, contest, pay, or claim a refund of any tax. You can deduct other expenses you pay for the purposes in (1)and (2) above only if they are reasonably and closely related to thesepurposes. These other expenses include: Appraisal fees for a casualty loss or charitablecontribution, Casualty and theft losses from property used in performingservices as an employee, Clerical help and office rent in caring forinvestments, Depreciation on home computers used for investments, Excess deductions (including administrative expenses)allowed a beneficiary on termination of an estate or trust, Fees to collect interest and dividends, Hobby expenses, but generally not more than hobbyincome, Indirect miscellaneous deductions of pass-throughentities, Investment fees and expenses, Legal fees related to producing or collecting taxableincome, doing or keeping your job, or getting tax advice, Loss on deposits in an insolvent or bankrupt financialinstitution, Repayments of income, Repayments of social security benefits, Safe deposit box rental, Service charges on dividend reinvestment plans, Tax advice and preparation fees, including fees forelectronic filing, and Trustee's fees for your IRA, if separately billed andpaid. If the expenses you pay produce income that is only partiallytaxable, see Tax-Exempt Income Expenses, later, underNondeductible Expenses. Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualtyloss or the fair market value of donated property. Certain Casualty and Theft Losses You can deduct casualty and theft losses on property used inperforming services as an employee from Form 4684, Casualties andThefts, lines 32 and 38b, or Form 4797, Sales of BusinessProperty, line 18b(1). For casualty and theft losses onincome-producing property, see Certain Casualty and TheftLosses, under Deductions Not Subject to the 2% Limit,later. For other casualty and theft losses, see Publication 547,Casualties, Disasters, and Thefts. 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 thetaxable income on them. Depreciation on Home Computer You can deduct depreciation on your home computer if you use it toproduce income (for example, to manage your investments that producetaxable income). You generally must depreciate the computer using thestraight line method over the Alternative Depreciation System (ADS)recovery period. But if you work as an employee and also use thecomputer in that work, see Depreciation on Computers or CellularTelephones under Unreimbursed Employee Expenses,earlier. For more information on depreciation, see Publication 946. Excess Deductions of an Estate If the total deductions in the estate's last tax year are more thanthe estate's gross income for that year, the beneficiaries succeedingto the estate's property can claim the excess as a miscellaneousdeduction. Do not include deductions for personal exemption andcharitable contributions when figuring the total deductions. Thebeneficiaries can claim the deduction only for the tax year in whichor with which the estate terminates, whether the year of terminationis a normal year or a short tax year. For more information, seePublication 559, Survivors, Executors, and Administrators. Alojamiento en motel MamaiaFees To Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similaragent to collect your taxable bond interest or dividends on shares ofstock. But you cannot deduct a fee you pay to a broker to buyinvestment property, such as stocks or bonds. You must add the fee tothe cost of the property. You cannot deduct the fee you pay to a broker to sell securities.You can use the fee only to figure gain or loss from the sale. See theinstructions for columns (d) and (e) of Schedule D (Form 1040) forinformation on how to report the fee. Hobby Expenses You can generally deduct hobby expenses, but only up to the amountof hobby income. A hobby is not a business because it is not carriedon to make a profit. See Not-for-Profit Activities inchapter 1 of Publication 535. Indirect Deductions ofPass-Through Entities Pass-through entities include partnerships, S corporations, andmutual funds. Deductions of pass-through entities are passed throughto the partners or shareholders. If the deductions are miscellaneousitemized deductions, they are generally subject to the 2% limit. Information returns.You should receive information returns from pass-through entities.Partnerships and S corporations issue Schedule K-1, which liststhe items and amounts you must report, and identifies the tax returnschedules and lines to use. Example.You are a member of an investment club that is formed solely toinvest in securities. The club is treated as a partnership. Thepartnership's income is solely from taxable dividends, interest, andgains from sales of securities. In this case, you can deduct yourshare of the partnership's operating expenses as miscellaneousitemized deductions subject to the 2% limit. However, if theinvestment club partnership has investments that also producenontaxable income, you cannot deduct your share of the partnership'sexpenses that produce the nontaxable income. You should receive a copyof Schedule K-1 (Form 1065). Allocated expenses of mutual funds.The allocable investment expenses of nonpublicly offered mutualfunds are subject to the 2% limit. Publicly offered mutual funds donot pass investment expenses through to shareholders. A "publicly offered" mutual fund is one that is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during thetax year. Contact your mutual fund if you are not sure if your fund ispublicly offered. Nonpublicly offered mutual funds.These funds will send you a Form 1099-DIV, Dividends andDistributions, or a substitute form, showing your share of grossincome and investment expenses. You can claim the expenses only as amiscellaneous itemized deduction subject to the 2% limit. Publicly offered mutual funds.These funds will send you a Form 1099-DIV, or a substituteform, showing the net amount of dividend income (gross dividends minusinvestment expenses). This net figure is the amount you report on yourreturn. Investment Fees and Expenses You can deduct investment fees, custodial fees, trustadministration fees, and other expenses you paid for managing yourinvestments that produce taxable income. Legal Expenses You can usually deduct legal expenses that you incur in attemptingto produce or collect taxable income or that you pay in connectionwith the determination, collection, or refund of any tax. You can also deduct legal expenses that are: Related to either doing or keeping your job, such as thoseyou paid to defend yourself against criminal charges arising out ofyour trade or business, For tax advice related to a divorce if the bill specifieshow much is for tax advice and it is determined in a reasonable way,or To collect taxable alimony. ERROR MSGYou can deduct expenses of resolving tax issues relating to profitor loss from business (Schedule C or C-EZ), rentals or royalties(Schedule E), or farm income and expenses (Schedule F) on theappropriate schedule. You deduct expenses of resolving nonbusiness taxissues on Schedule A (Form 1040). See Tax Preparation Fees,later. Loss on Deposits in an Insolventor Bankrupt Financial Institution If you lose money you have on deposit in a qualified financialinstitution because of the insolvency or bankruptcy of theinstitution, how you treat your loss depends upon whether you canreasonably estimate its amount. If you can reasonably estimate theamount of your loss, see Treating your loss as an itemizeddeduction, next. If you cannot, or if you would simply prefer towait until the year the loss is finally determined, see Treatingyour loss as a bad debt, later. Treating your loss as an itemized deduction.If you can reasonably estimate the amount of your loss, you canclaim it in the current year as: A miscellaneous deduction subject to the 2% limit, or A casualty loss. Maximum amount you can claim as a miscellaneous deduction.If you can claim the loss as a miscellaneous deduction, the maximumamount you can claim for each financial institution is $20,000($10,000 if you are married filing separately) reduced by any expectedstate insurance proceeds. When you cannot claim the loss as a miscellaneous deduction.You cannot claim the loss as a miscellaneous deduction if: Any part of the deposit is federally insured, You own at least 1% of the financial institution, You are an officer of the financial institution, or You are related to such an owner or officer. Final loss less than estimated loss.If the actual loss is less than the amount deducted as an estimatedloss, you must include in income in the final determination year theexcess loss claimed. See Recoveries in Publication 525. Treating your loss as a bad debt.If you cannot reasonably estimate the amount of your loss, or ifyou would just rather wait until the loss is finally determined, or ifthe actual loss that is finally determined is more than the amount youdeducted as an estimated loss, you can claim the excess loss as a baddebt in the year the amount of your loss is finally determined. How to report the loss.If you can claim the loss as a miscellaneous deduction, report iton Schedule A (Form 1040), line 22. It is subject to the2%-of-adjusted-gross-income limit. Indicate the name of the financialinstitution on line 22, and write "Insolvent Financial Institution."Also attach a page showing how you calculated your estimated loss. If you claim the loss as a casualty loss, report it on Form 4684and Schedule A (Form 1040). See Publication 547 for more information. If you claim the loss as a nonbusiness bad debt, report it as ashort-term capital loss on Schedule D (Form 1040). See Publication 550for more information. Repayments of Income If you had to repay an amount that you included in income in anearlier year, you may be able to deduct the amount you repaid. If theamount you had to repay was ordinary income of $3,000 or less, thededuction is subject to the 2% limit. If it is more than $3,000, seeRepayments Under Claim of Right, later. Repayments ofSocial Security Benefits If the total of the amounts in box 5 (net benefits for 1999) of allyour Forms SSA-1099, Social Security Benefit Statement,and Forms RRB-1099, Payments By the RailroadRetirement Board, is a negative figure (a figure inparentheses), you may be able to take a miscellaneous deduction. Theamount you can deduct is the part of the negative figure thatrepresents an amount you included in gross income in an earlier year. The amount in box 5 of Form SSA-1099 or RRB-1099 is thenet amount of your benefits for the year. It will be a negative figureif the amount of benefits you repaid in 1999 (box 4) is more than thegross amount of benefits paid to you in 1999 (box 3). Caution: If the deduction is more than $3,000, you will have to use aspecial computation to figure your tax. Get Publication 915,Social Security and Equivalent Railroad Retirement Benefits,for additional information. alberghi a LosannaSafe Deposit Box Rent You can deduct safe deposit box rent if you use the box to storetaxable income-producing stocks, bonds, or investment-related papersand documents. You cannot deduct the rent if you use the box only forjewelry, other personal items, or tax-exempt securities. Service Charges on DividendReinvestment Plans You can deduct service charges you pay as a subscriber in adividend reinvestment plan. These service charges include paymentsfor: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statementsof accounts. Tax Preparation Fees You can usually deduct tax preparation fees in the year you paythem. Thus, on your 1999 return, you can deduct fees paid in 1999 forpreparing your 1998 return. These fees include the cost of taxpreparation software programs and tax publications. They also includeany fee you paid for electronic filing of your return. Deduct expenses of preparing tax schedules relating to profit orloss from business (Schedule C or C-EZ), rentals or royalties(Schedule E), or farm income and expenses (Schedule F) on theappropriate schedule. Deduct expenses of preparing the remainder ofthe return on line 21, Schedule A (Form 1040). Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paidby you in connection with your IRA are deductible (if they areordinary and necessary). They are deductible as a miscellaneousdeduction on Schedule A (Form 1040). See Publication 590,Individual Retirement Arrangements (IRAs), for moreinformation.