At tax time, there is plenty of advice out there about how to maximize income tax deductions. With so much publicity focusing on what you can properly deduct, it's easy to think that almost anything you spend money on during the year can be a potential tax deduction. Not so fast. That type of thinking can get you into some pretty hot water with the IRS. Below is a list of expenses that might seem as if they should be deductible on your tax return -- but really aren't.
- Child Support. Even though court-ordered spousal support, or alimony, is deductible as an above the line deduction (in other words, you don't have to itemize in order to claim it), child support, while similarly ordered by the court, is not deductible as an expense on your tax return (as an above the line deduction or otherwise). All is not lost, though. Regular child-related deductions, such as child care expenses, may still apply.
- Personal Legal Expenses. Handing over a check to an attorney for legal expenses feels like it should be deductible. If you're shelling out funds to defend a homeowner's lawsuit or to recover losses suffered in a car accident, it seems like the fair thing would be to allow you to deduct the cost of those expenses on your tax return -- only it's not. Legal fees that are personal in nature are not deductible. Exceptions, however, do exist for individual taxpayers for the cost of legal services related to producing or collecting taxable income or obtaining tax advice.
- Gambling Losses. Most Americans know that gambling winnings are taxable, whether the source is legal or not. But the question of losses still confounds many taxpayers. The rule is that you can only claim gambling losses to the extent of your gambling winnings. If you don't have any winnings during the year, you can't deduct any losses. And if your losses exceed your winnings, you may not claim the excess. As long as Lady Luck is on your side, this won't be a problem.
- Hobby Losses That Exceed Hobby Income. I was pretty excited the first year I made money blogging -- until I realized I had spent far more than I had earned. If my blogging had constituted a full blown business, I could have claimed those excess losses on my tax return, but my options were limited since it is considered a hobby. Income from a hobby, whether it is from ads on a blog or profit from homemade crafts on Etsy, is reportable on your income tax return. Expenses related to your hobby income are deductible -- but only to the extent that you have income. Excess hobby expenses, no matter how huge, are not deductible.
- Roth IRA Contributions. The last minute scramble to make IRA contributions by April 15 is fairly common. After all, qualified contributions to your traditional IRA will reduce your tax bill as an above the line deduction. But contributions to a Roth IRA? Not deductible. This is because contributions to your traditional IRA will eventually be taxed upon withdrawal; withdrawals from a Roth IRA are income tax-free. The downside to the tax-free growth of the Roth IRA is that today's contributions aren't deductible.
- Weight Loss Programs and Gym Memberships. Preventive care may be smart. It's just not deductible. If you sign up for Jenny Craig to shed some pounds, or make the trek to the gym every day to get your blood pressure under control, it's likely not deductible -- even if your doctor advises that it's a good idea. The only way you can coax a deduction out of a weight loss program or gym membership is as a treatment for a specific disease diagnosed by a physician. Merely having a disease like hypertension isn't enough -- you'll have to prove that you've been diagnosed by a physician and that the program or gym membership has been ordered by your doctor.
- Home Repairs. If you have to make a major repair to your home, you can't generally deduct the cost of the repair, even if it's necessary for you to continue to live in the home. This is true even if the repair is significant (like a leaky roof). However, there are a few exceptions for casualty losses. If the repair is necessary due to damage suffered as a result of a federally-declared disaster, then you may deduct it. Additionally, if the repair is to correct a loss from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, fire, or earthquake, you can deduct it. But it's an awfully tough way to get a tax deduction.
- Costs of Commuting. You can deduct car-related expenses that you incur during the course of your job or business. This includes 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, however, deduct the costs of commuting to and from work. This is true even if your commute is lengthy or if you generally telecommute.
- Costs of Services to Charity. The value of your time is never deductible as a charitable expense. This is true even if the value of your time is east to ascertain (for example, if you normally bill by the hour, like lawyers and accountants). If you donate your time to charity, you get ... a warm fuzzy feeling. That's it. There's no corresponding deduction. You may, however, deduct the value of your out of pocket expenses, such as mileage.
- Expenses Related to Changing Careers. When Maryland nurse Lori Singleton-Clarke took on the IRS in a bid to deduct the expenses of her MBA, taxpayers cheered. But the Singleton-Clarke decision was quite narrow and hinged on a very specific set of facts; while Singleton-Clarke pursued a degree that was nontraditional for a nurse, it was still closely related to her job path. Expenses that help you either maintain or improve your job performance or are required by your employer or by law to keep your salary, status, or job are deductible. But expenses that are a part of a program that will qualify you for a new job don't count -- that includes job search expenses for new graduates or the cost of education for a new job.
