Do check out these following related — and legitimate — tax write-offs
Every tax-filing season, the great quest by filers is to find the most tax breaks. But there are some deductions and credits you should steer clear of. These expenses that don't meet Internal Revenue Service guidelines mean the agency will stop processing your tax return to give it second (or third, or …) look.
At best, a tax agent will make the change and send you a notice about what and why it was revised. At worst, you could end up spending time with an auditor and paying more in taxes, penalties and interest.
So that your return doesn't end up attracting undue IRS attention, here are some expenses you might be tempted to claim on your taxes. Don't even think about it.
But all tax breaks are not lost. After each of these six, shall we say, sketchy write-offs, you'll find some related tax breaks that do pass IRS muster and which could lower your tax bill.
1. Don't deduct your homeowner insurance, but …
That hazard policy you bought to cover damage from fires, tornadoes, hurricanes, winter storms and other disasters, as well as for more routine mishaps, offers peace of mind. What it doesn't provide is a tax deduction for the insurance premiums.
But if you have a legitimate home office, a prorated portion of your policy does count as a business expense.
And some taxpayers are able to deduct private mortgage insurance, or PMI. This is the insurance your lender requires you to buy if you don't put down a big enough down payment. Those premiums are deductible as an itemized expense. This Schedule A deduction first appeared in 2006, and has been renewed periodically as part of tax extenders packages over the years. It's still available to claim on 2021 tax year returns.
2. Don't deduct your commuting costs, but …
The cost of an employee getting to and from a workplace, either in your own vehicle or via public or other transportation, is never deductible. It's a personal expense, regardless of how far your home is from your office. And no, working while on the bus, subway, or train en route to or returning from your employer's location doesn't make the trip tax deductible.
But your employer might offer some tax saving transportation fringe benefits. They counter commuting stress of their workers by providing a tax-free way to pay for some of these costs. Companies used to get a corporate tax break for these workplace transportation benefits, but the Tax Cuts and Jobs Act of 2017 ended that. But the law change gave the companies the option to pick up the costs themselves, and some businesses have responded. They can provide up to $280 a month to employees to offset their commuter highway vehicle travel, any transit pass or qualified parking.
Keep track of your miles, too, if you're self-employed. Every legitimate, and documented, mile traveled to conduct your entrepreneurial enterprise counts. These business trip tallies go on the Schedule C or C-EZ filed by sole proprietors. So keep good records.
3. Don't deduct your pet, but …
Yes, your dog or cat or other animal companion is a family member. And yes, some insurance companies now include Fido or Fluffy in your policy's coverage. But your affection for your pet or an insurer's willingness to pay for some of your domesticated animal's care doesn't carry any weight with the IRS.
So don't you dare try claiming your pet as a dependent. Yes, it has been done. And yes, it is disallowed by the IRS when the furry facts are revealed.
You can, however, deduct as itemized medical expenses the costs of buying, training and maintaining a guide dog or other service animal to assist a visually impaired or hearing-impaired person, or a person with other physical disabilities.
Also, if you're a business owner, you can claim the costs of an animal that provides a genuine service for your company, such as a guard dog.
These last two animal tax options (and more) are discussed in my earlier post on ways pets can pay off on your tax return.
4. Don't deduct plastic surgery, but …
If you're simply following your inner Real Housewives persona, sorry. The IRS definitely won't let you deduct reality television inspired nips and tucks. Tax law specifically says you generally cannot include in deductible medical expenses the amount you pay for procedures such as face-lifts, hair transplants, hair removal (electrolysis), and liposuction.
But if a surgery is medically prescribed — for instance, a nose job to treat respiratory issues — and you just happen to like the look of your new sniffer, then that's OK. The doctor's decision makes it a medical deduction. Specifically, the IRS says:
"You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease."
You even can claim the cost of a wig purchased upon the advice of a physician to help yourself, your spouse or a qualifying dependent relative deal with hair loss or baldness due to a medical condition or treatment for a disease. Whether it's one of Dolly Parton's coifs is up to you.
Generally, taxpayers can count a wide variety of medical expenses as itemized deductions, ranging from the costs of medical weight loss efforts, smoking cessation programs, and even some structural changes to your home. Recent law changes prompted by the COVID-19 pandemic even has added some new deductible medical costs.
5. Don't deduct volunteer time, but …
Your time is valuable, but that doesn't matter to the IRS when it comes to volunteering at a charity. You can't claim the value of your wages for the hours spent helping out at your favorite nonprofit.
Neither can you count as a deduction the value of a project you created, such as a poster that you, a graphic artist, designed for the charity.
But you can deduct other costs associated with your charity work. This includes your mileage in connection with the group's work, which can be claimed at the rate of 14 cents per mile in the charity section of Schedule A.
You also can claim as a charitable donation your unreimbursed out-of-pocket expenses. This includes things like buying office supplies for your charity's administrative office so its staffers can continue to do their outreach.
If you don't itemize, don't worry. You also can claim some charitable gifts directly on the Form 1040 you file for tax year 2021.
6. Don't deduct children's overnight camp, but …
As coronavirus cases eased, many schools welcomed youngsters back to classrooms. Now summer will soon be here and working parents will again be looking for ways to keep their kiddos safely occupied while mom and dad are at the office.
Some families send the kids off to summer camp. That's a great experience for the kiddos and eases, at least temporarily, parental child care concerns. But sleep-away camps, in the summer or any other time of the year, are not tax-deductible.
However, if you decide instead to keep the kids at home and simply send them to day camp during the hours you're working, that expense could qualify as a claim for the child and dependent care credit.
This family-friendly tax break is even more beneficial on 2021 returns. The American Rescue Plan Act (ARPA) of 2021 increasing the amount of work-related expenses that can used to figure the credit amount. Instead of a maximum $6,000 in costs, now up to $8,000 in care expenses count if you have one qualifying person, and $16,000 if you have two or more qualifying persons.
ARPA also upped the percentage of those costs from 35 percent to 50 percent, meaning that the maximum total amount of the credit this tax year is $4,000 (50 percent of $8,000) if you have one qualifying person, and $8,000 (50 percent of $16,000) if you have two or more qualifying persons.
In prior years — and future ones if the 2021 change isn't extended — the maximums were (will return to) $1,050 ($3,000 x 35%) for care of one person/child, and $2,100 ($6,000 x 35%) for care costs of two or more qualifying dependents.
Even if the 2021 levels aren't continued, every little bit of child care help, especially as a tax break from dear old Uncle Sam, is welcome. You can read more about the child and dependent care credit and three more family-friendly tax breaks in my post entitled, what else, 4 family-friendly tax credits.
Remember, even the IRS says we should take all the tax breaks to which we're legally entitled. The key descriptor here is, of course, legal.
I hope that at least a few of these half dozen allowable tax breaks apply to your personal filing situation, this or future tax seasons.
You also might find these items of interest:
- Tax facts, fake vs. real
- Crazy tax deductions: When they don't - and do! - work
- Don't make any of these 12 common tax filing mistakes