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Deductions

Many clients ask me what they can deduct, so I am providing the following lists of possible deductions.  The lists are only meant to give you ideas, or steer you in the right direction.  They are not all-inclusive and not all items are deductible all the time.  Many are subject to limitations, may only apply in certain situations or are governed by other rules.  Please keep careful records and save your receipts for at least 3 years in case of audit.

• Schedule A Expenses

• Business Expenses for Self Employed

• Medical Expenses

• Expenses you Cannot Deduct

Schedule A Expenses (Itemized Deductions)

State and Local Taxes You Paid (the combined limit is $10,000)

• State and local income taxes or general sales tax paid during the tax year (including estimated tax payments and prior year's state/local tax). 

• Real estate/property tax (except foreign property tax). 

• Foreign taxes on income, including interest and dividends (if you didn't claim a foreign tax credit on Form 1116)

• Disability insurance tax (some states)
• Occupational taxes

• Personal property taxes based on value.  This includes auto registration or licensing fees, but only the portion based on value, and only if charged on a yearly basis.  Varies by state.

• See Mortgage Interest/Property Tax Deduction

Interest You Paid

• Mortgage interest

• Late payment charge on mortgage payment

• Mortgage prepayment penalties

• Points on principal residence financing

• Mortgage insurance premiums

• See Mortgage Interest/Property Tax Deduction

Gifts to Charity

• Charitable contributions (cash and non-cash) made to qualified U.S. charities and certain charities in Mexico, Canada and Israel. 

• Mileage to donate goods to charity or to perform charitable services.

• See Charitable Contributions

Medical Expenses

• Medical and dental expenses

• Medicare premiums 

• You can only claim the portion of the out-of-pocket medical expenses that exceed 7.5% of your adjusted gross income (AGI). 

Casualty and Theft Losses

• For victims of fire, flood or similar event.  You can only claim the portion that exceeds 10% of your adjusted gross income.

• You can only claim the losses if the event was declared a disaster by the president.  The loss may be claimed in addition to the standard deduction.

Business Expenses for Self Employed (Schedule C)

You are allowed to deduct most business expenses in full.  Meals are generally deducted at 50%.

See IRS Publication 535 for more information. 

Advertising and Promotion Expenses

Books and Publications

• Books, trade journals, newspapers and publications for your trade or profession

Dues and Fees:

• Dues to a professional organization for people in your profession
• Union dues, initiation fees, and assessments for benefit payments to unemployed union members.
• Regulatory fees for your profession
• Dues to chambers of commerce and similar organizations if the membership helps you carry out your job duties (see exceptions).
• Licenses paid to state or local governments

Education and Research

• Educational expenses related to your present work that maintains or improves your skills.
• Research expenses

Equipment and Supplies

• Business use of computer. 
• Supplies and tools you use in your work

Home Office

• Expenses for an office in your home IF part of the home is used regularly and exclusively for your work. 
• For more information, see IRS Publication 587

Internet

• Your internet expenses are only deductible if you use the connection for work purposes.  If you have a home office, allocate the business vs personal portion.

Meals

• Meals with a clear business purpose (i.e., meeting with clients) (only 50% of the cost is deductible).  Keep a record of the date, place, amount of expenses, people present, business purpose, and business discussed.  Also keep receipts for expenses in excess of $75.
• Starting with tax year 2018, expenses related to activities generally considered entertainment, amusement or recreation are no longer deductible.  Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.  Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.  For more information, see IRS Guidance.

 Telephone Charges

• Business use of cellular phone. 
• Cost of long-distance business calls charged to home phone
• Separate business telephone (home phone line is not deductible)

Travel and Transportation

• If your home is your principal place of business, all business travel is deductible.
• Traveling costs paid in connection with a temporary work assignment
• Transportation between your home and a temporary work location if you have no regular place of work but you ordinarily work in the metropolitan area where you live and the temporary work location is outside that area
• Transportation between your home and a temporary work location if you have at least one regular workplace for this employment. It doesn’t matter how far away the temporary location is in this case.
• Transportation from one job to another if you work two places in one day
• If your home is your principal place of business, all business travel is deductible.
• You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

• If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business.

• For more information, see IRS Publication 463

Uniforms and Gear

• Protective clothing and gear
• Uniforms
• Dry cleaning costs for your uniforms or protective clothing (not for your everyday clothing, though, unless you're on a business trip)
• Specialized clothing designed for your job, as long as it's not suitable for everyday wear

Other

• Gifts, but only up to $25 per recipient
• Passport if needed for business travel
• Postage
• Office supplies
• Printing and copying
• Legal and professional services (tax preparation fee)
• Business liability insurance premiums

• Interest on business loans
• Self-Employed health insurance (partial)
• Commissions and fees
• Keogh or SEP contributions
• Rental of business property
• Office rent and utilities
• Repairs and maintenance
• Business taxes and licenses
• Dry cleaning costs during a business trip

Unreimbursed Employee Business Expenses (limited to certain states)

There is no longer a federal itemized deduction for miscellaneous and job related expenses (subject to the 2% of adjusted gross income floor).  However, certain states may still allow these expenses as an itemized deduction on the state return.  They include New York, California, Alabama, Arkansas, Hawaii, Iowa, Minnesota, and Pennsylvania.

Qualified Medical Expenses

Generally, you can only deduct the excess over 7.5% of Adjusted Gross Income, and then only if you can itemize on Schedule A.  This means that if your adjusted gross income was $100,000, you can only deduct the amount of medical expenses you spent over $7,500.   Please also refer to IRS Publication 502:  Medical Expenses.

• Acupuncture
• Air conditioner necessary for relief from allergies or other respiratory problems
• Alcoholism treatment
• Analysis
• Artificial limbs
• Artificial teeth
• Birth control pills prescribed by a doctor
• Braille books and magazines used by a visually-impaired person
• A clarinet and lessons to treat the improper alignment of a child’s upper and lower teeth
• Contact lenses
• Cosmetic surgery to improve a deformity
• Dental fees and supplies
• Diet, special. When prescribed by a doctor, you can deduct the extra cost of purchasing special food to alleviate a specific medical condition.
• Doctor or physician expenses
• Drug addiction treatment
• Elastic hosiery to treat blood circulation problems
• Exercise program if recommended by doctor to treat a specific condition
• Extra rent/utilities for a larger apartment required in order to provide space for a nurse/attendant
• Eye surgery, when it is not for cosmetic purposes only
• Fertility treatment:  Limited to procedures such as in vitro fertilization (including temporary storage of eggs or sperm) and surgery, including an operation to reverse prior surgery that prevented the person operated on from having children.
• Guide dog
• Hospital care
• Household help for nursing care services only
• Insurance premiums for medical care coverage
• Laboratory fees
• Lead-based paint removal where a child has or had lead poisoning
• Legal fees paid to authorize treatment for mental illness
• Lifetime care advance payments
• Lodging expenses while away from home to receive medical care in a hospital or medical facility
• Long-term care insurance and long term care expenses (with limitations)
• Mattresses and boards bought specifically to alleviate an arthritic condition
• Medical aids. This includes wheelchairs, hearing aids and batteries, eyeglasses, contact lenses, crutches, braces, and guide dogs (including costs paid for their care).
• Medical conference admission costs and travel expenses for a chronically ill person or a parent of a chronically ill child to learn about new medical treatments.
• Medicines and prescription drugs
• Nursing care.
• Nursing home expenses if there to obtain medical care.
• Oxygen and oxygen equipment.
• Reclining chair bought on a doctor’s advice by a person with a cardiac condition.
• Special education tuition of mentally impaired or physically disabled person.
• Smoking cessation programs.
• Swimming costs, if therapeutic and prescribed by a physician.
• Telephone cost, repair and equipment for a hearing-impaired person.
• Television equipment to display the audio part of a TV program for hearing-impaired persons.
• Transplants of an organ, but not hair transplants.
• Transportation costs for obtaining medical care.
• Travel expenses for parents visiting their child in a special school for children with drug problems, where the visits are part of the medical treatment.
• Weight loss program, if it is recommended by a doctor to treat a specific medical condition or to cure any specific ailment or disease
• Whirlpool baths prescribed by a doctor.
• Wig for the mental health of a patient who lost his or her hair due to a disease.
• X-ray services.

Expenses You Cannot Deduct

People commonly hope to deduct some of the following expenses, but unfortunately they are not deductible.

Non-Deductible Expenses:

• All employee related business expenses (i.e., related to wages reported on Form W2) as of tax year 2018.  However, certain states, including New York and California, still allow these as an itemized deduction on the state tax. 
• Miscellaneous expenses subject to the 2% of adjusted gross income floor, such as tax preparation fees and investment advisory fees (as of 2018).  Certain states, including New York and California, still allow these as an itemized deduction on the state tax return.
• Personal expenses other than those listed under medical expenses or Schedule A expenses, or where there is no provision for a deduction in the tax code.
• Cosmetic surgery to improve personal appearance
• Immigration visa expenses, such as for obtaining a Green Card or H-1B visa.
• Moving expenses (exceptions for members of the armed services) as of tax year 2018.  However, you may be able to claim the expenses on your state tax return (state rules vary).
• Interest on personal loans.
• Support of family members, with the exception of specific expenses, such as dependent care, for qualifying dependents.
• Contributions made to individuals or foreign charities (with some exceptions for qualified charities in Israel, Canada and Mexico).
• Contributions made to individuals on GoFundMe.
• Student loan interest if adjusted gross income is greater than $75,000 (single) or $150,000 (married).
• Student loan principal.

Nondeductible Home Expenses.  Some exceptions for rental properties.

• Mortgage principal payments

• Homeowner's association fees (unless rental properties).

• Apartment rent (some states provide a deduction for rent such as New Jersey and Massachusetts).

• Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance, unless the property is a rental.

• Wages you pay for domestic help.

• Depreciation, unless rental property.

• The cost of utilities, such as gas, electricity, or water, unless rental property

• Most settlement fees, closing costs, and legal fees involved in purchasing a property, unless rental property

• Forfeited deposits, down payments, or earnest money.

• Home phone line