Taxpayers are always looking for ways to save on their tax liability. Each year, as we all prepare our tax returns, we account for the expenses that were incurred. We do this for a variety of reasons to identify deductions that each of us might qualify to claim under the law.
For some, those expenses can lead to big deductions. They, in turn, can add up to big savings. For others, the expenses are insufficient enough to claim in an itemized fashion. Thus, the standard deductions allowed are claimed instead. Unfortunately, the latter isn’t always as significant savings off the tax bill. You may still owe Uncle Sam a considerable amount of money.
The IRS provides a litany of deductions for filers along a wide range of circumstances. The more you are able to claim, the less you could end up paying with your return. That’s why so many taxpayers hire tax professionals to help them get every deduction possible. Those who go it alone can sometimes find themselves in trouble with the IRS.
Since there are so many deductible items for filers to claim, some go a little overboard in claiming too many. That’s where things can get a little dicey. Sure, there are filers who try to claim deductions to which they aren’t entitled. However, there are those taxpayers who make an honest mistake in claiming an expense as deductible when in reality it is not allowed by the IRS.
This article seeks to clear up some of the confusion. It depends on your particular situation. Perhaps you are a homeowner, a small business owner, or someone who had medical expenses or a new baby in the tax year. In these cases, you have some deductions coming your way. It’s based on a number of expenses incurred for the filing year. Yet, not all of your expenses are going to qualify for a deduction. That is true even if similar costs that you had to pay do count toward lowering your tax bill.
Well, wonder no more. Here we point out eight expenses that you thought were deductible but aren’t. You will have a better understanding of what is permitted and what is restricted by the IRS. Thus, you can complete your tax return more faithfully. You won’t face any possible penalties and fees down the road.
1. Home Expenses
You may incur significant expenses on your home over the course of the year. Some of those costs may be deductible. Though, there are many you will not be able to apply toward reducing your tax bill. That is the case even though it may seem as if you could or should be able to do so. There are also deductions for business use of your home. You need to be careful to separate from personal expenses made to maintain the home.
Home Improvements
Costs associated with improving your home in most capacities are not deductible. That includes any improvements made in order to enhance a home office. Those you may be eligible to claim home office expenses on for the filing year. You may not deduct these expenses. Home improvements typically add value to your home. Yet, whether renovating an existing room or adding an entire extension to the dwelling, it can’t be written off.
You would get a return on the money spent if you ultimately decide to sell the house. That doesn’t mean you can’t take a deduction on any resulting tax bills that you may be facing after you make these renovations. If your property taxes are increased after a renovation, you can claim a deduction on those costs only.
However, there are some exceptions to this restriction on deducting the expenses of home improvements. That is as long as these renovations are made to install special equipment or make changes to the existing home for medical purposes. If such renovations are made in the home, these costs may be tax deductible. As long as they are done to provide medical care for you, your spouse, or a dependent living in the home, you can write them off.
Installing an Alarm System
If you pay to get an alarm system installed in your home, these costs are also not deductible under the tax code. Neither are the monthly expenses for maintaining a subscription to the monitoring company that installed the alarm.
Nonetheless, if you are installing that alarm system in a rental or commercial property, those expenses are deductible as business expenses. Perhaps you are able to take the home office deduction. In that case, you can claim costs of the alarm system in your home on a pro rata basis.
This is in the same way you claim other expenses related to the use of a home office. Therefore, you may only deduct the portion of the costs that apply to your home office. The remainder of the costs for the alarm system and monitoring will not be deductible.
Insurance Premium Costs
If you’re a homeowner then you have homeowner’s insurance premiums you are paying every month. Unfortunately, these expenses are not deductible. It doesn’t matter if your insurance is in place to cover the standard protections for owning a home or additional riders for protection against fire and flood incidents. None of these insurance expenses are eligible for deductions.
Mortgage Payments
Maybe you have a mortgage. You’re making monthly payments on that loan. Thus, you may not claim the amounts you pay toward reducing the principal. Those do not qualify under the tax code.
2. Medical Expenses
The IRS provides an exhaustive list of eligible medical expenses on their website. You have a seemingly endless array of qualified medical expenses that are deductible in whole or in part. They are based on your particular situation where care and treatments and amounts paid are concerned.
However, that does not mean that every medical expense is allowable under the law. There are almost as many medical expenses that are not deductible. The list of disallowed medical expenses is very lengthy.
Here are some of the more common misconceptions taxpayers have when it comes to deducting their medical expenses on their taxes. Don’t try to deduct these. The IRS will deny them to you should they decide to conduct an audit.
Health Club and Gym Memberships
Fees paid for a membership to one of these types of establishments are not allowed for deduction. Weight loss programs such as Weight Watchers are also ineligible. This is because these types of facilities and programs may help to keep you healthy. Yet, they are not providing specific medical care to treat or prevent a certain illness or another health defect.
With respect to a weight loss program, you may be able to deduct some costs. That is only if you are participating in that program to treat a disease or other malady that has been diagnosed by a medical professional.
Has your doctor recommended that you start going to a gym? You still can’t deduct those expenses because the gym isn’t treating a diagnosed condition. You may be able to claim certain fees paid at the gym to take a class that can help treat a condition or disease. However, the membership costs themselves can’t be written off.
Child Care
Some child care related expenses may be tax deductible. Though, not when it comes to costs incurred related to receiving medical care. Let’s say you put your infant or child in daycare or hire someone to look after the child so you, your spouse, or a dependent can receive medical or dental care. You’re going to have to incur those costs without expectation of claiming them as a deduction. Any expenses that you may claim using the child care credit are also ineligible as a deductible medical expense.
Cosmetic Surgery
There is one defining factor that you can rely on in order to determine if a medical expense is deductible or not. Any costs incurred in order to treat a medical condition as diagnosed by your physician are likely going to qualify for a deduction on your taxes.
Cosmetic surgery, in most cases, won’t be deductible expenses. This is because the procedure is typically performed in order to improve one’s appearance. It’s not providing genuine medical care. That means any expenses for a facelift, tummy tuck, breast implants, and other appearance enhancements are typically disqualified.
Conversely, there are exceptions for cosmetic surgery procedures to improve one’s appearance. Those are where a facial deformity is being corrected or the patient has sustained disfigurement from an injury or illness. In these cases, the expenses qualify for a deduction.
Nonprescription Medications or Supplements
Any medication or supplement that is not or cannot be prescribed by a licensed physician is not a deductible expense. The one exception to this rule is insulin. If a doctor recommends a certain medication or supplement but does not prescribe it to you, then it is no longer deductible.
Your physician may recommend you start including a vitamin or a natural or nutritional supplement in your diet. Nonetheless, that doesn’t make the cost deductible. These dietary supplements only work to maintain your overall health and well-being. They do not treat a specific illness or provide medical care for a condition. Therefore, they are not deductible expenses.
3. Education Expenses
Like many of the other types of expenses on our list, there are some that qualify as deductible on your taxes and some that do not. The distinction between the two is often found in the little details and education expenses are no different.
What makes one deductible and one excluded from deduction can be as simple as to whom you are paying the money to for that particular expense. Most fees for education are deductible. They include tuition and fees, student activity fees. That is in addition to the costs for the various books, supplies and any equipment necessary to the courses being taken.
However, these many expenses are only deductible if you are required to pay the institution directly to receive these things. If you buy your books from the school they may not be deductible. That is unless you had to buy them from the school only.
Miscellaneous Educational Costs
Expenses related to educational costs but not paid out directly to receive education aren’t deductible. These include expenses for things like room and board, transportation, living expenses, medical expenses, and insurance. It doesn’t matter who you are paying that money to. You will not be able to claim a deduction on those amounts.
Private School Tuition
Any expenses incurred to send a child to private school are not deductible. That includes everything, even tuition. You can’t claim any of it on your taxes. Though, there are exceptions on expenses for a child attending nursery school, preschool or another program below the Kindergarten level. They are deductible for the child care tax credit, only if one of these may qualify as child care.
4. Business Expenses
There are almost as many business expenses that qualify for a deduction on your taxes as there are medical expenses. What you can claim is predicated upon your current situation. The deductions for one individual or business may not be the same for another. However, there are certain business-related expenses that you may think are deductible. Nonetheless, they are not eligible no matter what type of business you operate or where you might work.
Work Clothing
For most taxpayers, the cost of clothing you buy to wear to work is not a deductible expense. Let’s say you get a few suits and ties for the office or purchase some nice dresses that are acceptable to wear to work. You may not claim those costs from your taxes.
There are exceptions to this restriction. If you have a job that requires you to wear a specific uniform, then you may be able to deduct the expense. Be careful. There are little details in place again to define deductible from non-deductible.
Perhaps you work in a restaurant and your “uniform” is a gray T-shirt and black pants. Then, the expense is not qualified for deduction. That is because those are clothes you could wear elsewhere as part of your attire. If you are a mechanic and need to buy coveralls that have the garage logo embroidered on them, then that is a deductible expense. The same goes for stage clothing that entertainers may need to buy in order to work. It’s also deductible.
Gifts for Clients
The IRS allows for a small deduction on business gifts. You may deduct a maximum of $25 per each gift that’s given to a client or customer. No matter how much the gift cost initially. Thus, if the item is $30 or $300, you may only take a $25 deduction.
Entertaining Clients
Don’t expect to write off highly extravagant meals or other entertainment costs incurred while entertaining prospective or current clients. Under the IRS code, you may deduct half of your expenses for these items. If you are taking yourself out to lunch, you can’t write that off in any amount. It’s not deductible.
Commuting Costs
Let’s say your job requires you to travel and you use your own vehicle to do so. In that case, you may deduct the IRS standard mileage rate of 57.5 cents per mile. Yet, if you travel to your place of business, that is ineligible for deduction. Traveling to a client’s place of business is deductible.
Cell Phone Expenses
Any expenses for a cell phone, much like with other items that can be used for business and personal reasons, are deductible but only up to a point. You are limited in how much you can deduct and in order to claim what you are entitled to deduct you will need to calculate how much you spent on calls for business-related matters and subtract that from the overall expenses of that cell phone. The remainder left is not deductible since those calls and data use were done for personal reasons and not for business.
Legal Fines and Penalties
Let’s say you get a ticket for speeding while you are traveling for business. Maybe you get a parking ticket while on the job. Perhaps you break the law in any other capacity for which you could be fined or otherwise monetarily penalized. In such cases, you will not be able to claim any of those costs as a deduction from your taxes.
Premiums on Employee Life Insurance
Benefit premiums and payments you make on insurance for your employees are mostly deductible. The exception is when you make such payments on behalf of your employees for life insurance. If your business is not the beneficiary should your employee pass away, you may deduct the payments. If the opposite is true, the premiums are not deductible. These rules apply to contributions made to 702 retirement accounts as well.
5. Personal Expenses
There a variety of payments for costs you may incur in your everyday life. While it would certainly be great if these expenses were tax-deductible, unfortunately, they are not.
Bank Fees
In most cases, the growing list of fees you pay to your bank for the privilege of letting them hold your money is not deductible. That means any overdraft or ATM fees you may have paid out over the year do not qualify.
This is because the fees that you pay out to maintain your checking account are considered a personal expense. Conversely, if you pay fees for non-tax-advantaged investment vehicles, you may be able to claim them. In that case, they would be considered an investment expense and not a personal one.
6. Childcare Expenses
Raising kids these days can cost an arm and a leg. The IRS has laws in place to help parents recoup some of the costs associated with having a family. Yet, not all such expenses will qualify for a deduction.
Babysitting Fees
Any expenses related to child care services engaged to allow you to seek employment or work during the day can be written-off. Those same expenses, when engaged for recreation, are not deductible under the IRS tax code. This is because babysitting expenses incurred while you went out for dinner and a movie are personal expenses. They are not work-related and therefore do not qualify.
Child Support Payments
Taxes do not affect child support payments in any capacity. The payer may not deduct them from their tax liability. The recipient does not have to pay taxes on those amounts for the year. Therefore, if you are making such payments you may not deduct them.
7. Donation Expenses
Giving money or goods to a charity can be deductible from your taxes. That’s as long as you have thorough supporting documentation. It must prove you made such donations. However, there are contributions that do not qualify for a deduction.
Political Donations
If you make contributions to a political candidate, campaign committee, or similar fund you cannot deduct them from your taxes. Claiming these donations as a business expense won’t make them eligible either. The IRS is very specific about this. Thus, trying to claim those donations could lead to an audit.
8. Miscellaneous Expenses
There are the other daily fees and costs you may be faced. They may feel like they should qualify for a deduction but do not. Here are a few that many filers have tried to deduct in the past.
Pet and Veterinary Costs
Any expenses for a pet are not qualified as a deduction. That includes food, check-ups, surgery, and other costs for care to keep your pet healthy and happy. There are exceptions when it comes to deducting costs for an animal. Guide dogs and other service animals are considered deductible expenses. All of their food and vet expenses are eligible as a write-off.
Driver’s License Costs
The fees you pay to get a driver’s license or your car inspected can’t be written off. Other miscellaneous licensing or compliance costs for operating a motor vehicle are not deductible from your taxes.
This is a good cross-section of the many daily expenses that taxpayers may be faced with over the course of the year. These expenses are typically ineligible for a deduction certain forms of these expenses. Though, some that have been identified on our list are deductible under special circumstances.
We have not included all of them here. Therefore, if you are confused or concerned about an expense and it’s eligibility for deduction, contact your tax professional. Additionally, you can visit the IRS website at www.irs.gov.