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Tuesday Tax Tips: Tax Deductions to
Avoid
When I meet with clients to strategize, I often
discuss how to avoid an audit and/or IRS scrutiny of a return. While
I want to get every nickel out of a given return legally, there are
some deductions that I avoid due to audit risk. In a nut shell here
are my top ten:
1.) Clothing.
Many people need to dress a certain way for their job but unless it
is a mandated, non-reimbursed uniform, you will be out of luck in an
audit. The revenue agent that is reviewing your return has to dress
well and does not write that clothing bill off so he or she will
probably not let you write yours off.
2.)
Reimbursed Job Expenses. It's true that you can deduct
business expenses on your federal income tax return so long as they
are paid or incurred during your tax year; used for carrying on your
trade or business of being an employee; and ordinary and necessary.
However, the expenses must also be unreimbursed -- to the extent
that your employer pays you back for any of those costs, those
portions of the expenses are not deductible. Don’t double dip!
3.) Diets and
Health Club Dues. Most diets and health club dues aren't
deductible even if your doctor has recommended that you lose some
weight in order to improve your health. While you can deduct medical
expenses for the diagnosis, cure, mitigation, treatment or
prevention of disease, including the costs of doctors and
medications, you cannot deduct the cost of expenses that are merely
beneficial to your health -- this includes most diets and health
club dues. To be deductible, the diet or exercise plan must be
specifically prescribed by a doctor for a diagnosed medical
condition, not as preventative care and not just so that you look
and feel better. Some limited exceptions apply.
4.) Primary
Telephone Landlines. The IRS will allow you to deduct the
cost of a second telephone landline or a cell phone to be used in
business but you may not deduct the cost of your home telephone line
-- even if you use it for business. The IRS considers a primary
telephone line routinely personal and thus, not deductible. You may
not pro rate the cost of the phone even if you can prove
non-personal use. You can, however, deduct long distance and other
related charges if you can prove business use.
5.) Home
Improvements. At some point, almost every homeowner spends
money for some kind of improvements to their home. For the most
part, while those improvements may make your home more comfortable
(and may increase the cost basis and fair market value of your
home), they are generally not deductible. You may still be entitled
to a tax break, however: Under current law, you can get a tax credit
for the purchase and installation of certain energy-efficient
improvements.
6.) Campaign
Expenses. Thinking of running for office? To the extent
that you have to pay for campaign expenses out of pocket, you're
going to have to chalk that up to the cost of public service.
Expenses incurred as part of your election campaign aren't
deductible on your federal income tax return.
7.) Commuting
Costs. While it's true that you can deduct certain travel
expenses related to your job (such as traveling from one workplace
to another in the course of your job or business; visiting clients,
vendors or customers; and going to a business meeting away from your
workplace), you can't deduct the costs of commuting to and from
work. This is true even if you travel long distances to work (say,
from Philadelphia to New York City every day) or if the method of
getting to work is expensive (for example, you take a cab).
8.)
Charitable Services. While you can deduct the cost of goods
and cash that you donate to qualified organizations, you may not
deduct the cost of services that you donate to charity, even if you
can easily measure the value of those services. You can, however,
deduct out of pocket costs that you incur while performing those
services.
9.) Pet
Care. If you're like many clients, you may consider your
pet a member of your family. However, as much as you may adore your
furry (or scaly) addition to the family, he or she does not count as
a dependent. You may not deduct the cost of taking care of your pet
even if your pet incurs significant medical expenses. An exception
applies with respect to guide dogs and service animals -- you can
include the costs of buying, training and maintaining those animals
as part of your deductible medical expenses.
10.) Attorney's Fees.
Attorney's fees may be deductible for businesses, but as a general
rule, individual taxpayers cannot deduct most legal fees. This
includes attorney's fees related to divorces, disputes over property
boundaries and personal injury cases. Those legal disputes are
considered personal in nature, which means the IRS won't allow you
to take a deduction for them. However, you can deduct personal legal
fees that you paid to determine, contest, pay or claim a refund of
any tax (including tax advice) as well as those legal fees related
to producing or collecting taxable income.
Schedule a tax strategy meeting today if you want
to discuss your past returns or future planning. A safe efficient
tax strategy can save you thousands of dollars in taxes as well as a
ton of headache if you are audited.
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