U.S. Tax Preparation Worldwide
James Maertin CPA
Tax Guide
IRS Tax Law Changes
Americans Abroad
Capital Gains,
Interest and Dividends
Deductions
Dependents
Education Credits,
Scholarships
Foreign Bank Reporting
Foreign Nationals
Social Security, Medicare,
Self Employment Tax
State
Taxes
Tax Deadlines,
Extensions, Late Payments, Estimated Tax
Tax Resident, Nonresident, Dual Status
Other Topics
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 (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 to buy, build or substantially
improve a property.
-
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
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 however.
-
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
Nondeductible Taxes and Fees.
-
Fees for taking an exam to
qualify you in a profession (e.g., Bar Exam, GRE, etc.)
-
Personal purpose license fees (e.g., marriage,
driver's license, dog, etc.)
-
Employment taxes. This
includes social security, Medicare, and railroad retirement taxes
withheld from your pay. However, one-half of self-employment tax you pay
is deductible. In addition, the social security and other employment
taxes you pay on the wages of a household worker may be included in
medical expenses that you can deduct or child care expenses that allow
you to claim the child and dependent care credit.
-
Estate, inheritance, legacy, or succession
taxes. However, you
can deduct the estate tax attributable to income in respect of a
decedent if you, as a beneficiary, must include that income in your
gross income. In that case, deduct the estate tax as a miscellaneous
deduction that is not subject to the 2%-of-adjusted-gross-income limit.
-
Federal income taxes. This
includes income taxes withheld from your pay.
-
Fines and penalties. You
cannot deduct fines and penalties paid to a government for violation of
any law, including related amounts forfeited as collateral deposits.
-
Gift taxes.
-
Per capita taxes. You
cannot deduct state or local per capita taxes.