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Are miscellaneous itemized deductions allowable?

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March 5  |  California, IRS News  |   admin

Miscellaneous itemized deduction rules recently changed and are not allowable for Federal Tax purposes but they are still allowable for California Tax purposes.

Miscellaneous itemized deductions are certain business and non-business expenses that individuals as taxpayers who otherwise itemize deductions may take against their taxable income. Such miscellaneous expenses are allowed only to the extent that they exceed 2-percent of a taxpayer’s adjusted gross income. Miscellaneous itemized deductions may also be limited by the overall itemized deduction phase-out.

These expenses include employee business expenses, expenses of producing income, expenses related to filing tax returns and certain hobby expenses. Specifically, the miscellaneous itemized deductions available to a taxpayer are:

  • Professional society dues;

  • Employment-related educational expenses;

  • Home office expenses;

  • Professional books, magazines and journals;

  • Work clothes and uniforms;

  • Union dues and fees

  • A portion of unreimbursed business-related meal and entertainment expenses;

  • Other unreimbursed employee business expenses;

  • Employee expenses for which reimbursements are included in income;

  • Rental of a safe-deposit box;

  • Expenses incurred for tax counsel and assistance;

  • Costs of work-related small tools and supplies;

  • Investment expenses;

  • Fees paid to an IRA custodian; and

  • Certain expenses of a partnership, grantor trust or S corporation that are incurred for the production of income.

Additionally, there are some miscellaneous expenses that are not subject to the 2-percent of adjusted gross income limitation. These include:

  • Bond premium amortization for taxable bonds;

  • Gambling losses for the year up to the extent of gambling winnings;

  • Casualty and theft losses associated with income-producing assets; and

  • Federal estate tax on income in respect of a decedent.

Federal Tax Reform

The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the Internal Revenue Code (IRC). In general, California Revenue and Taxation Code (R&TC) does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. For Schedule CA (540), California Adjustments – Residents, adjustments due to the TCJA, see the specific line instructions for the following items:

  • Combat zone extended to Egypt’s Sinai Peninsula

  • Moving expenses and reimbursements

  • Limitation on deduction of business interest

  • Limitation on employer’s deduction for fringe benefit expenses

  • Limitation on wagering losses

  • Sexual harassment settlements

  • IRC Section 965 deferred foreign income

  • Global intangible low-taxed income (GILTI) under IRC Section 951A

  • Excess business loss

  • Student loan discharged on account of death or disability

  • Qualified equity grants

  • Expanded use of 529 account funds

  • California Achieving a Better Life Experience (ABLE) Program

  • Living expenses for members of Congress

  • Limitation on state and local tax deduction

  • Mortgage & home equity indebtedness interest deduction

  • Limitation on charitable contribution deduction

  • College athletic seating rights

  • Casualty or theft loss(es)

  • Miscellaneous itemized deductions

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the IRC as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law.

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