19.1 2% AGI Floor Reduces Most Miscellaneous Expenses

A floor of 2% of adjusted gross income (AGI) applies to the total of most miscellaneous deductions that are claimed on Schedule A of Form 1040. AGI is the amount on Lines 37 and 38 of Form 1040. The purpose of the floor is to reduce or eliminate such deductions. Only expenses above the floor are deductible.

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image Caution
AMT Disallowance
Even if you are able to deduct for regular tax purposes a portion of miscellaneous expenses because they exceed the 2% AGI floor, you will lose the benefit of that deduction if you are subject to alternative minimum tax (AMT). The deduction from Schedule A for miscellaneous expenses (after the 2% floor) must be added back to income in determining whether you are liable for AMT (23.2).
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Miscellaneous expenses subject to the 2% AGI floor include:

  • Unreimbursed travel, meals, and entertainment expenses of employees on trips away from home (20.1 and 20.30)
  • Taxable reimbursements of job expenses or taxable expense allowances under non-accountable plans (20.34)
  • Unreimbursed local transportation costs of visiting clients or customers (19.8)
  • Union dues (19.5)
  • Professional and business association dues (19.5)
  • Work clothes expenses (19.6)
  • Cost of looking for a new job (19.7)
  • Job agency fees (19.7)
  • Tax advice and preparation fees (19.16)
  • Appraisal fees related to casualty losses and charitable property contributions (19.16)
  • Investment costs, e.g, IRA custodial fees, safe-deposit rentals, and fees to investment counselors (19.15)
  • Employee home office expenses (19.13)
  • Legal fees for recovering taxable job-related or personal damages (19.17)
  • Work-related education costs (33.15)
  • Business bad debt on a loan made to your employer to protect your job (5.33)

Miscellaneous expenses not subject to the 2% AGI floor include:

  • Casualty and theft losses from income-producing property (18.13)
  • Impairment-related work expenses for disabled employees (19.4)
  • Gambling losses up to gambling income (11.3)
  • Estate tax attributable to income in respect of a decedent (11.16)
  • The deduction for repayment of amounts held under a claim of right (2.8)
  • Amortizable bond premium on bonds purchased before October 23, 1986 (4.17)
  • Unrecovered investments in pension on deceased retiree’s final return (7.22)
EXAMPLES
1. You pay union dues of $380, work clothes costs of $400, and $150 for the preparation of your tax return. Your adjusted gross income (AGI) is $35,000. Your miscellaneous deduction on Schedule A after applying the 2% floor is $230:
Union dues $380
Work clothes   400
Tax preparation   150
$930
  Less: 2% of $35,000   700
Deductible amount $230
2. Your adjusted gross income (AGI) is $90,000. You pay the following deductible miscellaneous expenses:
Professional dues $100
Investment counsel fee   300
Safe-deposit box     50
Tax preparation fee   500
Unreimbursed travel expenses   800
$1,750
Since the 2% floor of $1,800 (2% × $90,000) exceeds your miscellaneous expenses, none of the expenses are deductible.
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