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Posted on February 6, 2017

February Monthly Newsletter: 15 Lesser Known Miscellaneous Itemized Deductions

Last Thursday, the weather forecasting groundhog Punxsatawney Phil crawled out of his burrow on Gobbler’s Knob in Punxsatawney, Pennsylvania to predict the weather for the rest of winter. According to legend, if Punxsatawney Phil sees his shadow, there will be six more weeks of winter weather.

If he does not see his shadow, there will be an early spring.[1] As a crowd of thousands cheered him on eagerly awaiting the results, the Seer of Seers, the Prognosticator of All Prognosticators[2], declared —  there will be six more weeks of winter – and then crawled back into his burrow to wait for Spring.

The official Groundhog Day website claims Phil’s predictions are correct 100% of the time.[3] However, recent weather data seems to contradict Phil’s accuracy. A January 31, 2016 article published in USA Today cites a report conducted by the National Centers for Environmental Information, claiming that since 1988, Phil was “right” 13 times and “wrong” 15 times.[4] Phil has a history of seeing his shadow going back to the inaugural Groundhog Day in 1887. Adding in his most recent predictions (and accounting for the years in which no record was kept), Phil has predicted six more weeks of winter 85% of the time.  Some consider Groundhog Day the unofficial start of tax season. And with an overwhelming bias towards picking the option that allows him to spend most of February through May in his burrow waiting out winter, we can’t help but think Phil may have been an accountant in a previous life, hoping to avoid the chaos of tax season by spending the winter tucked away in his den.

We can’t tell you if Phil’s prediction will be correct and winter will last another six weeks. But as you begrudgingly realize the fact that tax season has begun and you’re not lucky enough to be like Phil and spend the next couple of months tucked away in your den waiting for Spring, embrace the chaos and consider these 15 Lesser Known Miscellaneous Itemized Tax Deductions. Meet with your accountant (assuming he/she hasn’t retreated to their den for tax season like Phil) to see if you can lower your tax bill.

Miscellaneous Itemized Deductions Subject to 2% Limit

The first 13 deductions on this list are generally deductible as miscellaneous itemized deductions and you can claim the amount of expenses that is more than 2% of your Adjusted Gross Income (AGI).

  1. Dues to Chambers of Commerce and Professional Societies – Deductible if membership helps you carry out the duties of your job.
  1. Educator Expenses – Eligible educators can deduct up to $250 of qualified expenses paid in 2016 as an adjustment to AGI.
  1. Home Office – You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively as your principal place of business.
  1. Licenses and Regulatory Fees – Amounts paid to state or local governments for licenses and regulatory fees for your trade, business or profession may be deductible.
  1. Tools Used in Your Work – amount spent for tools used in your work are generally deductible if the tools wear out and are thrown away within one year from the date of purchase.
  1. Travel, Transportation, Meals, Entertainment, Gifts, and Local Lodging – If you are an employee and have ordinary and necessary business-related expenses for travel away from home, local transportation, entertainment and gifts, you may be able to deduct these expenses.
  1. Work-Related Education – To be deductible, the education must maintain or improve skills required in your present work or is a requirement by your employer or the law to keep your job and the requirement serves a business purpose of your employer.
  1. Tax Preparation Fees – You may be able to deduct fees paid in 2016 for preparing your 2015 tax return, including the cost of tax preparation software or tax publications and any fee you may have paid for electronic filing of your return.
  1. Depreciation on Home Computer – You may be able to deduct depreciation on your home computer if you use it to produce income and it meets the business-use requirement (used predominantly for qualified business use).
  1. Hobby Expenses – You may be able to deduct hobby expenses up to the amount of hobby income if it is determined the hobby is not carried on for profit.[1]
  1. Investment Fees and Expenses – Investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income are deductible.
  1. Legal Expenses – You can deduct legal expenses that are related to either doing or keeping your job, for tax advice related to a divorce (bill must be specific), or to collect taxable alimony. You may also be able to deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection or refund of any tax.
  1. Safe Deposit Box Rent – You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds or investment-related papers and documents. Rent is not deductible if you use the box only for jewelry, other personal items or tax-exempt securities.

Miscellaneous Itemized Deductions Not Subject to 2% Limit

  1. Gambling Losses – Be sure to keep an accurate diary (dates, location, establishment, amounts) of your gambling losses and winnings as gambling losses are deductible up to the amount of your winnings.
  1. Unrecovered Investment in Annuity – A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree’s investment.[2]

Don’t be like Punxsatawney Phil – get out of your burrow, embrace tax season, and talk to your accountant and advisor about how you can take advantage of these lesser known deductions to potentially reduce your tax bill!

Monthly Investment Review: January 2017

Investors entered the New Year with trepidation, still riding the rally that saw equity markets remain positive through December and are now waiting to see if now-President Trump would make good on his promises of enacting pro-growth policies after his inauguration. Markets, no friend of uncertainty, understandably reacted with volatility but it’s interesting to note that the days leading up to the inauguration were no less volatile than that of past presidents. If we focus on the chart below, the S&P 500 was actually less volatile immediately leading up to January 20th.

Turning to the broad market, the NASDAQ Composite was the clear outperformer as the benchmark posted a 4.3% return while the S&P 500 and Dow Jones Industrial Average trailed at 1.79% and 0.51%, respectively. The Dow Jones capped the month of January with a late push past the historic 20,000 mark before the end of January, only to retreat back below, plagued by one of the largest sell-offs since October of last year. We would note that the Dow Jones is a price-weighted index, meaning that stocks with high prices have a larger weighting and greater impact on performance of the benchmark. It would be hard to argue that confusion and controversy weren’t making headlines last month but investors now have an idea of how the new administration will react, allowing them to readjust their expectations. Internationally, Asia continued its borrowing frenzy throughout the month, selling a record amount of bonds in the international market from the likes of Japan and India. Investors speculate that this massive bond buy points to international insecurity regarding the implications of a new U.S. president. European markets weren’t immune to the global volatility. In particular, the British pound posted its best January since 2011 and European markets were swayed by ongoing Brexit discussions. While it’s certainly an interesting economic and geopolitical environment, our research team will be monitoring the markets closely, following our repeatable, research-driven processes and positioning the portfolios for the months and years ahead.