By Michael Aston, E.A.
Alhambra Tax Center
Casualty losses has its own line on Schedule A. If you have a casualty loss, for example -- a tree falls on your car and the car is totaled -- only the amount the insurance does not cover may be applied as a casualty loss. There’s also a 10% threshold which is deducted from the loss.
For example: your adjusted gross income is $100,000, your threshold will be $10,000 dollars (10%). Your car had a FMV of $30,000 dollars. The threshold amount ($10,000) must be deducted from the $30,000 – which leaves you a casualty loss of $20,000 (30,000 - $10,000 = $20,000). Then…the IRS wants you to subtract $100 from the loss (please don’t ask me why). So now, your total casualty loss will be $19,900 ($30,000 - $10,000 - $100). If the auto insurance reimbursed you $15,000 on your car – your net loss would be $4,900.
There are different rules which apply if there is a presidential or governor declared disaster. For more information, you can go to IRS Topic 515.
There are two types of miscellaneous deduction which I will summarize below.
Miscellaneous Deductions Subject 2% Threshold: The first 2% of 1040 line 38 is not deductible.
· Unreimbursed employee expenses may be deductible. The IRS states “ordinary and necessary job expenses you paid for which you weren’t reimbursed. An ordinary expense is one that is common and accepted in your field. A necessary expense is one that is helpful and appropriate for your field. Here is a breakdown of some of the popular expenses
o Safety equipment, protective clothing and tools.
o Uniforms required by your employer that ARE NOT suitable for ordinary wear. Police officer would be able to deduct their uniform and dry cleaning, when a lawyer would not be able to deduct the suit worn in court.
o Physical exams required by your employer.
o Dues to professional organizations and CHAMBER OF COMMERCE.
o Subscriptions to professional journals.
There are many more qualified deductions, for a detailed list see IRS Publication 529.
· Tax preparation fees. What you paid to get your 2015 taxes done can be deducted on your 2016 tax return.
· Other Expenses examples would be
o Certain legal and accounting fees.
o Custodial fees (for example, trust account)
o Some investment expenses.
o Deduction for repayment of amounts under the claim of right if $3,000 or less. For example, if you have to pay back unemployment.
Miscellaneous Deductions Not Subject to the 2% Threshold:
· Gambling loss, but only to the extent of the winnings. For example, if your total winning for the year was $10,000 (which would be entered on line 21 of the 1040) and your total losses for the year was $12,000. Only $10,000 of your losses can be deducted. What was not mentioned in the July issue “Charitable Deduction” is purchasing raffle tickets from a qualifying nonprofit. The reason why is raffle tickets would be considered gambling winning or losses. Also, gambling winnings from the California Lottery (not Powerball or Mega Million) are taxable for the federal but not the state, that goes the same for deducting California Lottery losses.
· Deduction for repayment of amounts under the claim of right if over $3,000.
· Certain unrecovered investment in a pension.
For more information on all itemized deduction please go to the IRS or consult with your tax professional.