A business bad debt is a loss from a debt created or acquired in your trade or business. Any other worthless debt is a business bad debt only if there is a very close relationship between the debt and your trade or business when the debt becomes worthless.

A debt has a very close relationship to your trade or business of being an employee if your main motive for incurring the debt is a business reason.

You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job.

If you break an employment contract, you can deduct damages you pay your former employer if the damages are attributable to the pay you received from that employer.

You can claim a depreciation deduction for a computer or cell phone that you use in your work as an employee if its use is:

Do not use Form 4562 to claim the depreciation deduction for a computer you placed in service before 2006 and used only in your home office, unless you are otherwise required to file Form 4562. Instead, report the depreciation directly on the appropriate form. (See How To Report, later.) But if you are otherwise required to file Form 4562, report the depreciation in Part III, line 17.

You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Similar organizations include:

You cannot deduct dues paid to an organization if one of its main purposes is to:

Dues paid to airline, hotel, and luncheon clubs are not deductible. See Club Dues under Nondeductible Expenses, later.

You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least one of the following two tests.

If your education meets either of these tests, you can deduct expenses for tuition, books, supplies, laboratory fees, and similar items, and certain transportation costs.

You cannot deduct expenses you have for education, even though one or both of the preceding tests are met, if the education:

If the education qualifies you for a new trade or business, you cannot deduct the educational expenses even if you do not intend to enter that trade or business.

In 2005, if you were an eligible educator, you could deduct your qualified educator expenses as an adjustment to income up to a certain amount. If your ordinary and necessary educator expenses were over that amount, you could deduct the excess as a miscellaneous deduction subject to the 2% limit. The provision that allowed qualified educator expenses to be deducted as an adjustment to income expired at the end of 2005. For 2006, you can deduct ordinary and necessary educator expenses only as a miscellaneous deduction (unreimbursed employee business expenses). See the instructions for Form 2106 or Form 2106-EZ for more information.

If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home.

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:

The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job.

You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. You cannot deduct these expenses if:

You can deduct legal fees related to doing or keeping your job.

You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession.

You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return.

An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment.

If you are a college professor, you can deduct your research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. However, you cannot deduct the cost of travel as a form of education.

If your expenses to use a vehicle in performing services as a rural mail carrier are more than the amount of your reimbursements, you can deduct the unreimbursed expenses. See chapter 4 of Publication 463 for more information.

Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. You can depreciate the cost of tools that have a useful life substantially beyond the tax year. For more information about depreciation, see Publication 946.

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. Generally, you must file Form 2106 or 2106-EZ to claim these expenses.

You can deduct dues and initiation fees you pay for union membership.

You can also deduct assessments for benefit payments to unemployed union members. However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Also, you cannot deduct contributions to a pension fund even if the union requires you to make the contributions.

You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. See Lobbying Expenses under Nondeductible Expenses, later.

You can deduct the cost and upkeep of work clothes if the following two requirements are met.

Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.).

Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.

However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible.

You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property.

You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. First report the loss in Section B of Form 4684, Casualties and Thefts. You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 35 and 41b, or Form 4797, line 18a. For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts.

You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them.

You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. But if you work as an employee and also use the computer in that work, see Depreciation on Computers or Cell Phones under Unreimbursed Employee Expenses, earlier. For more information on depreciation, see Publication 946.

If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators.

You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. You must add the fee to the cost of the property.

You cannot deduct the fee you pay to a broker to sell securities. You can use the fee only to figure gain or loss from the sale. See the instructions for columns (d) and (e) of Schedule D (Form 1040) for information on how to report the fee.

You can generally deduct hobby expenses, but only up to the amount of hobby income. A hobby is not a business because it is not carried on to make a profit. See Not-for-Profit Activities in chapter 1 of Publication 535.

Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Deductions of pass-through entities are passed through to the partners or shareholders. The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit.

You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income.

You can usually 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.

You can also deduct legal expenses that are:

You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040 or Form 1040NR). See Tax Preparation Fees, earlier.

If you can reasonably estimate the amount of your loss on money you have on deposit in a financial institution that becomes insolvent or bankrupt, you can generally choose to deduct it in the current year even though its exact amount has not been finally determined. Once you make this choice, you cannot change it without IRS approval.

If none of the deposit is federally insured, you can deduct the loss in either of the following ways.

If any part of the deposit is federally insured, you can deduct the loss only as a casualty loss.

If you have a loss on your traditional IRA (or Roth IRA) investment, you can deduct the loss as a miscellaneous itemized deduction subject to the 2% limit, but only when all the amounts in all your traditional IRA (or Roth IRA) accounts have been distributed to you and the total distributions are less than your unrecovered basis. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later.

If the total of the amounts in box 5 (net benefits for 2006) of all your Forms SSA-1099, Social Security Benefit Statement, and Forms RRB-1099, Payments By the Railroad Retirement Board, is a negative figure (a figure in parentheses), you may be able to take a miscellaneous itemized deduction subject to the 2% limit. The amount you can deduct is the part of the negative figure that represents an amount you included in gross income in an earlier year.

The amount in box 5 of Form SSA-1099 or RRB-1099 is the net amount of your benefits for the year. It will be a negative figure if the amount of benefits you repaid in 2006 (box 4) is more than the gross amount of benefits paid to you in 2006 (box 3).

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. You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities.

You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. These service charges include payments for:

Trustee's administrative fees that are billed separately and paid by you in connection with your IRA are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit.

In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. You can elect to amortize the premium on taxable bonds. The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item.