As of the 2018 tax year, itemized deductions for job-related expenses or other miscellaneous expenses (outlined below) that exceeded 2% of your income have been suspended.
For tax years previous to 2018, if you itemize your deductions, part of the expenses that you claim as deductions may be limited by the 2% rule. Deductions that are included are unreimbursed employee expenses, expenses claimed on Form 2106, tax preparation fees, safety deposit box rental, and investment fees. Most other "Miscellaneous Deductions" are also subject to the 2% rule.
Do I have to do any calculations when entering my deductions in to my account?
No. When entering deductions in your account, you do not have to do any of the calculations. Enter the full amount in the appropriate field for each qualifying expense, and we will do the calculations for you. Entry fields are provided for the most common deductions. Enter the full amount in each field. The program will complete the Schedule A and apply the 2% rule in figuring your total for your itemized deductions.
What is the 2% rule?
For deductions that are subject to the 2% rule, you may only deduct the part of the expenses that exceeds 2% of your Adjusted Gross Income (AGI). To figure the amount of your allowable deduction for these expenses, the IRS provides a section on Schedule A, Job Expenses and Certain Miscellaneous Deductions. You first list the full amounts for each expense. These are then added together. From the total of these expenses (the expenses that are subject to the 2% rule), you would subtract 2% of your AGI. What remains is the amount of your deduction.
When entering deductions in your account, you do not have to do any of the following calculations. Enter the full amount for each expense, and we will do the calculations for you. The following is for informational purposes, to help provide an understanding of how the net deduction is calculated for expenses that are subject to the 2% rule.
Example: Tony's AGI is $30,000. He has qualifying unreimbursed employee expenses of $1000, tax preparation fees of $100, and qualifying safety deposit box rental fees of $50. All of these expenses are ones that are subject to the 2% rules. To figure the amount of his deduction, Tony would:
- Add up the deductions that are subject to the 2% rule. 1000 + 100 + 50 = 1150 (Line 23 of Schedule A)
- Figure 2% of his AGI. .02 X 30,000 = 600 (Line 25 of Schedule A)
- Subtract 2% of his AGI from his deductions that are subject to the rule. 1150 - 600 = 550 (Line 26 of Schedule A)
Even though he had expenses totaling $1150, because these particular expenses were subject to the 2% rule, his net deduction that he will receive on his return for these expenditures is only $550.
