          
          
          
                         Miscellaneous Deductions
          
          
          23) Retaining their medical, miscellaneous and employee
          business expense deductions is important to most
          taxpayers, because these expenses generally are
          unavoidable.  Yet Congress tried to curtail these
          deductions because one of the ideas behind tax reform
          was that you would give up some deductions in order to
          get lower tax rates.  Yet the clever taxpayer knows how
          to keep some of those deductions and get the benefit of
          lower rates.  Even after tax reform, that is possible.
               The change in the medical expense deduction is
          very simple.  You can deduct only the unreimbursed
          medical expenses that exceed 7.5% of your adjusted
          gross income, and then only if those excess deductions
          when combined with your itemized expenses exceed the
          standard deduction.  Everything else about the medical
          expense deduction remains the same.
               Miscellaneous deductions had a few more changes. 
          The expenses are deductible only to the extent they
          exceed 2% of adjusted gross income and the excess when
          combined with other itemized deductions exceeds the
          standard deduction.  In addition, some expenses that
          could be deducted in the past can no longer be
          deducted.  The expenses for attending an investment
          convention or seminar are not deductible.  Travel for
          educational purposes is not deductible, so school
          teachers can no longer deduct the cost of a summer
          vacation that was spent in some way related to the
          courses they teach.
               The biggest change is that unreimbursed employee
          business expenses become miscellaneous itemized
          deductions.  In the past most unreimbursed employee
          expenses could be deducted from adjusted gross income. 
          You didn't have to worry about whether you had enough
          itemized deductions or about getting above a 2% floor. 
          That's no longer true.  Items such as travel and
          entertainment expenses and business mileage must be
          included in miscellaneous itemized deductions.  So now
          instead of having two separate categories of
          deductions, there is only the deduction for
          miscellaneous expenses.  In addition, business
          entertainment expense deductions are limited to 50% of
          the cash outlay, and the "quiet business meal"
          exception is eliminated.  Under this exemption, a meal
          could be deducted even if business was not actually
          discussed.  Now there must be a bona fide business
          discussion either during the entertainment or
          immediately before or after it for the expense to be
          deductible.
               Some specialized miscellaneous expenses are
          deductible without regard to the 2% floor.  These
          expenses are impairment-related work expenses of the
          handicapped; estate taxes related to income in respect
          of a decedent; certain adjustments where a taxpayer
          restores amounts held under a claim of right;
          amortizable bond premiums; certain costs of cooperative
          housing corporations; expenses of short sales in the
          nature of interest; certain terminated annuity
          payments; and gambling losses to the extent of gambling
          winnings.  Some actors can report their income and
          expenses as independent contractors instead of
          employers.  These actors are those who have two or more
          employers in the acting profession during the year,
          whose expenses related to acting exceed 10% of gross
          income, and whose adjusted gross income before
          deducting expenses related to acting exceeds $16,000.
               There are a number of actions you can take to
          avoid the onerous effects that these changes were
          intended to create.
          
          24) As with medical expenses, a key concept to
          maximizing miscellaneous expense deductions is
          bunching.  You want to put as many expenses as possible
          in one year.  Since miscellaneous expenses are far more
          discretionary than medical expenses, this is much
          easier to do.  Probably the only good reason for
          failing to do so is cash flow problems.  
               Here are some examples of how bunching should
          work.  Let's say you're an employee and have been
          subscribing to professional publications, paying dues,
          running up some unreimbursed business mileage, and
          buying some job-related equipment.  You also attend a
          professional convention once a year at your own
          expense.  You're used to deducting the mileage and
          equipment for adjusted gross income and taking the
          other items as itemized deductions.  Now all these
          expenses have to be itemized and are deductible only to
          the extent they total more than 2% of adjusted gross
          income.
               There are a couple of approaches you can try.  One
          is to pay for subscriptions and dues two years in
          advance and make all the payments in the same year. 
          Then you will have large expenses one year and no
          expenses the next year.  This increases the amount of
          deductions you'll have above the 2% floor.  But the IRS
          has issued a press release saying that this strategy
          does not work.  The IRS says that when you pay for more
          than 12 months at a time, the payments must be prorated
          over two taxable years.  Fortunately, there is a way to
          comply with the IRS ruling and still bunch
          miscellaneous deductions.  You can make one year of
          payments for everything in January, then pay for the
          next 12 months during the following December.  For
          example, pay for 1989 subscriptions and dues in January
          1989, then pay for 1990 in December 1989.  That way you
          will have two years of payments in one year but the
          deductions qualify under the rules given in the IRS
          press release.
          
          25) Part of the cost of securing a divorce can be a
          miscellaneous deduction.  You cannot deduct the cost of
          a personal legal action, such as securing a divorce. 
          But part of the divorce process can be deductible. 
          Each spouse can also deduct any fees attributable to
          tax advice and planning.  The cost of keeping or
          obtaining property as part of a property settlement is
          not deductible but can be added to the property's
          basis.  Most likely part of the cost of a divorce will
          be deductible and part will not be.  Key point: Have
          your lawyer and other advisors submit itemized bills in
          which they set out the time spent on deductible and
          nondeductible matters.
          
          26) Some lucky taxpayers can deduct the cost of
          commuting to work.  Take the case of a taxpayer whose
          principal place of business is a home office.  Any
          business trip you make from that office is deductible
          business mileage, even if the trip is to another office
          or place where you work.  The key is that the home
          office must be your principal place of business for
          that occupation (you can have two jobs), the place
          where you do most of your work.  Commuting mileage also
          can be deducted when you are away from home on a
          temporary work assignment.  A temporary assignment is
          one that you know will not last indefinitely, and under
          the 1993 law, does not last more than one year.  When
          you are out of town on a temporary job, all your
          mileage is deductibleincluding mileage from your
          lodging to your place of business.  Commuting mileage
          also is deductible when you have a temporary work
          assignment out of town but decide to drive back and
          forth from your home each day.
               An individual with two jobs also will have
          deductible commuting mileage.  You cannot deduct the
          cost of going from either job to home, but the cost of
          going from one job to the other is deductible mileage. 
          So it pays you not to stop off at home between the two
          jobs.  Another person with deductible commuting mileage
          is the person with businesses in two different areas. 
          The area where you spend most of your time will be your
          principal place of business.  The other area will be
          considered away-from-home travel.  You deduct not only
          the cost of going there, but the mileage you drive
          while at the second location.
          
          27) The IRS in drafting its forms and instructions
          tends not to emphasize miscellaneous expenses.  That
          leaves many people unaware of just now broad this
          category is.  You can deduct any expense you incurred
          in the production of income or for investment purposes. 
          You just have to be able to distinguish those expenses
          from personal expenses.  
          
          28) Deduct your expressions of sympathy?  Flowers and
          other sympathy gifts are deductible only if there is a
          business connection.  However, you can always deduct a
          charitable contribution given in memory of a deceased
          person, whether there is a business tie-in or not, if
          you itemize deductions.  And the family often
          appreciates this more than a gift.
          
          29) Noncash donations to charity are an easy way to
          boost deductions.  Gather up old clothes, unwanted
          books, junk furniture, and any other items you can
          find.  Then take them to a worthy group.  You get a
          deduction for the fair market value of the items at the
          time of the contribution.  Be sure to get a receipt for
          the items from the charity.  Some organizations will
          put an estimate of fair market value on the receipt,
          while others will not.  Documentation is important for
          these transactions.  If the deduction is over $500 you
          definitely need receipts.  If the property is worth
          over $5,000 you need to have it appraised before taking
          the deduction.
          
          30) Give appreciated property to charity instead of
          cash.  Suppose you plan to make a large gift to your
          church or some other charity.  You own some art which
          has appreciated substantially since you bought it.  You
          could sell the property, pay tax on the gain, and give
          the remaining cash to the charity.  But you could also
          donate the art to the charity.  In that case you deduct
          the fair market value of the art and do not have to pay
          any tax on the appreciation in the art's value.  But if
          the art, or the total value of your charitable gifts
          for the year, exceeds $5,000 in value, you must have an
          appraisal of the property done.  The appraisal must be
          signed by both the appraiser and the charity and must
          be attached to your tax return.
               This strategy is even better after the 1993 tax
          law, because Congress eliminated the possibility that
          giving away appreciated property might trigger the
          alternative minimum tax.
          
          31) Casualty loss deductions are still available if you
          avoid the three traps the IRS likes to use.  The first
          trap is that you must claim the deduction in the year
          the loss occurs, even if the amount of the loss is not
          ascertainable.  This is a trap because the deduction
          can be deferred when you cannot yet determine if a loss
          has occurred.  The difference may seem slight, but it
          can have a big effect on your tax bill.  Suppose a deep
          freeze does damage to your trees.  A landscape gardener
          says he might be able to save the trees, so you cannot
          determine yet if any loss has occurred.  The deduction
          can be delayed until a subsequent year when it is clear
          that the trees cannot be saved.  In a recent case a
          taxpayer tried to apply this rule.  The taxpayer's
          driveway was washed away in a thunderstorm.  At the
          time the return was filed, the taxpayer believed the
          amount of the damage could not be determined because
          several contractors disagreed over how much repair work
          would be required.  But a federal appeals court said
          the deduction should have been taken in the year of the
          thunderstorm.  A loss clearly had occurred, the
          question was how much the loss was.  The taxpayer
          should have estimated the loss and deducted it; if the
          estimate turned out to be wrong, the return could be
          amended.  (Allen, 4th Cir., 9/9/85)
               The second trap is related to the first.  The
          taxpayer thought the amount of the loss could not be
          determined because he thought the cost of the repairs
          would be deductible.  That's wrong.  Your deduction is
          the lower of (1) your basis in the property or, (2) the
          reduction in value due to the casualty.  Your
          replacement or repair cost is irrelevant.  That's one
          reason why it is important to keep your property and
          casualty insurance policies up to date.  If an item has
          appreciated substantially above its cost to you, the
          tax deduction won't help you recover the value if it is
          lost or stolen.  Your deduction will be limited to the
          item's cost.  In any case, casualty losses can be
          deducted only to the extent they exceed 10% of adjusted
          gross income.
               The third trap was created by tax reform.  In
          order to claim a casualty loss deduction, you have to
          file an insurance claim if the property was covered by
          insurance.  Only the amount of your unreimbursed loss
          can be deducted.  If you do not get a reimbursement
          from the insurer until after you already took the full
          deduction, you can file an amended return or include
          the reimbursement in income next year.
          
          32) Taking a new job can boost your itemized
          deductions.  Most people don't realize that the
          expenses of looking for a new job in the same field are
          deductible.  The deductible expenses include everything
          from printing up resumes to visiting out-of-town firms. 
          The expenses are deductible even if you eventually
          decide not to take another job, as long as you were
          seriously considering a new job.  The expenses are not
          deductible, however, if you are looking for your first
          job.  These expenses can really add to your
          miscellaneous deductions, so you should maximize other
          miscellaneous expenses in a year when you decide to
          look for another job.
          
          33) The family vacation can still generate deductions. 
          If you can combine a business trip with a short
          vacation, part of the vacation costs can be deductible. 
          Your transportation expense (the cost of getting from
          here to there and back) is deductible if the primary
          purpose of making the trip is business.  So your
          transportation cost is deductible when you made the
          trip because of a convention or an important business
          meeting.  It is best to spend more than half the trip
          on business, but your transportation will be deductible
          when you can show that the trip would have been made
          even if no vacation were possible. Traveling expenses
          for your spouse and other family members generally
          cannot be deducted.  After 1993, traveling expenses of
          a spouse or dependent or deductible only when the
          individual is employed by the taxpayer paying the
          expenses and there is a bona fide business reason for
          the person's presence on the trip.
          
          34) Moving expenses can be easier to take under latest
          change.  Previously, moving expenses were an itemized
          deduction.  If you used the standard deduction you were
          out of luck.  After 1993, qualified moving expenses can
          be deducted directly from gross income.  Even better,
          if your employer reimburses you for qualified moving
          expenses, the reimbursement is tax free.  The trade off
          is that not as many expenses qualify for deductions as
          before.  You no longer can deduct househunting trips or
          meals consumed while traveling to the new home or
          living in temporary quarters.  Also, the new place of
          work must be at least 50 miles farther from the old
          residence than the old residence was from the old place
          of work.  You can deduct the cost of moving household
          goods and the cost of traveling from the old home to
          the new home.
          
          35) There are quite a large number of miscellaneous
          expenses.  Here is a list of the most commonly
          overlooked deductions.
               *    Accounting fees for investment or tax work
               *    Agency fees paid to get a new job
               *    Books used for employment or investment
          purposes
               *    Auto expenses or taxi fares to visit your
          broker or other advisor
               *    Christmas gifts given to customers or clients
               *    Clothing and uniforms needed on the job
               *    Conventions
               *    Correspondence courses
               *    Dues and fees for organizations related to
          employment or investments
               *    Educational expenses
               *    Entertainment expenses
               *    Fees paid for collection of interest and
          dividends
               *    Fees paid to set up or administer an IRA
               *    Home office expenses
               *    Investment management fees
               *    Local transportation related to the job
               *    Medical exams required for the job
               *    Passport fees for business travel
               *    Periodicals and publications related to job
          or investments
               *    Safe deposit box used to store investments
               *    Supplies and equipment used on the job
               *    Tax return preparation fees
               *    Telephone calls made on personal phone or
          credit card
               *    Tools used on the job
               *    Travel costs to look after or investigate
          investments, if reasonable compared to size of
          investments
               *    Union dues
          
          36) Tax reform has not limited your ability to engage
          in year-end tax planning.  You can increase tax
          deductions or shift income into next year.  Here are
          some steps that will cut this year's tax bill.  (1)
          Make a large contribution to your church in December
          instead of smaller weekly contributions in the
          following year.  Consider making two year's worth of
          charitable donations at once and taking the deductions
          this year.  (2) Renew subscriptions to business, tax,
          and investment publications in order to bunch
          deductions and get your miscellaneous itemized
          deductions above the 2% floor.  (3) Medical expenses
          also should be bunched to get above the 7.5% floor. 
          Elective surgery and regular check-ups should be timed
          to coincide with years in which you pay for nonelective
          treatment.  (4) Prepay miscellaneous itemized
          deductions such as safe deposit box rental fees and
          bank custodial fees.  (5) Pay professional or business
          association membership dues by December 31.  Purchase
          work-related equipment and uniforms by the end of the
          year.  (6) Some local jurisdictions allow you to prepay
          real estate and personal property taxes.  If so, such
          prepayments are deductible in the year paid.  But other
          jurisdictions consider these payments to be deposits on
          future taxes.  A deposit is not deductible.  Check with
          your local tax office to see how a prepayment will be
          treated.  (7) If you are planning to give property to
          reduce estate taxes, give away stocks or mutual funds
          that pay large year-end dividends.  (8) Have repair and
          maintenance work done on rental properties completed by
          December 31st.  (9) A sale of property can be done on
          an installment basis.  You can delay receipt of the
          money for only a few months, say in January or
          February, and defer recognizing the income on your
          taxes for an entire year.  After 1986 you cannot do an
          installment sale of property traded on a public
          exchange (such as stock and bonds), or property for
          which you are a dealer.  (10) An alternative is to
          delay closing a sale until next year.  The money you
          are to receive can be put in an escrow account and held
          there until next year.  (11) If you have a business, it
          is a good policy to mount a late year advertising
          campaign.  These expenses will be deductible, but you
          generally won't get the bulk of the income generated by
          the campaign until early next year.  You deduct the
          expenses this year and recognize the income next year. 
          (12) Sell capital assets with paper losses until the
          realized losses equal your capital gains for the year. 
          The capital gains and losses offset each other and only
          the difference is brought into taxable income.  If you
          think the assets that showed losses are good long-term
          investments, you can buy them back after more than 30
          days have passed.  (13) A gain on stock can be
          preserved yet delayed until next year by a "short sale
          against the box." This means that you hold the stock
          you already own, but make a short sale of the same
          number of shares by borrowing them from your broker. 
          The short sale is covered sometime in January by giving
          the broker your original shares.  You recognize gain
          only when the short sale is covered.
          
          37) Credit cards are not all alike for the purpose of
          tax deductions.  Around the end of the year, the
          newspapers and popular magazines like to tell readers
          that using a credit card near the end of the year can
          be a way to take a tax deduction this year and pay the
          bill next year.  This works for any deductible
          expense -- whether it be a personal prescription or a
          business expense.  The angle is that the charge can be
          deducted in the year it is charged, not the year it is
          paid.  But there is a dangerous hole in the popular
          advice can leave you stuck with a big tax mess.  Credit
          card deductions are not all the same under the tax
          rules.  The general rule of tax deductions is that you
          only get a tax deduction in the year you actually pay
          for a deductible expense, and the tip about using
          credit cards is an exception to the general rule.  What
          most of the people giving you this end of the year tip
          don't tell you is that there is a critical exception to
          the exception.  If you charge a deductible expense on a
          credit card issued by the company supplying the
          deductible goods or services, you can't take a
          deduction until the credit card bill is paid.  If you
          use the store credit card you can't deduct it until you
          pay.  But if you use your Visa or MasterCard you can
          take the deduction immediately.  If you use your credit
          card you can take the deduction this year, but if the
          store bills you directly you can't take the deduction
          until you pay the bill.  Keep this in mind near the end
          of the year, when you may want to choose which card you
          use depending upon which year you want to take the tax
          deduction in.
          
          
          
