10 Tax Items That Often Get Overlooked
Blake R. Laurence, a partner in the firm’s Tax and Estate Planning department, uncovers some tax deductions you might not have considered before.
The tax code is filled with various nuances that allow a taxpayer certain deductions. However, they are not well publicized and many people miss those deductions simply because they do not know about them or their accountant forgets to ask. It is important to be proactive as the more you know the more money you could save!
- Gambling Losses
Everyone likes to win and no one likes to lose. However, casinos were not built strictly on winners. Winnings from gambling are taxable and must be reported. If you had gambling losses, you can deduct up to the amount of your gambling winnings. These losses are reported on as an "other miscellaneous deduction." However, be prepared to show proof of your losses. If you used your player card, the casino will be able to track your winnings and your losses which is the perfect proof to use not to mention the other perks that come with being a loyal casino gambler.
- Legal Fees
Let’s be honest, no one really likes to pay legal fees but getting a tax deduction may make them a little less painful. However, if you itemize, you can deduct certain legal fees related to doing or keeping your job, collecting taxable alimony or any fees dealing with tax advice. The fees must total at least 2 percent of your Adjusted Gross Income.
- Volunteer Work
Not only is volunteer work personally rewarding but the IRS rewards you as well. Did you know that you can deduct certain expenses for charity work, such the cost of gas if you use your car to get to and from the place you volunteer? If you don't want to calculate the value per mile it is a lot easier to deduct the standard rate of 14 cents per mile. In addition, you can also deduct the cost of purchasing and maintaining uniforms you wear to the place you volunteer at, or parking in a garage if that's required. A word of caution would be to make sure to keep a log of the date, time and mileage should the IRS ever look to question your charitable inclinations.
- Volunteer Travel Costs
You might be able to claim a charitable contribution deduction for travel expenses (not your time or services) you had to incur while helping out a non-profit organization. However, be careful as the IRS requires that "no significant element of personal pleasure, recreation or vacation in the travel." That does not mean that it has to be all work and no play but be sure that your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
- Home Renovation for Medical Purposes
Typically, home renovation costs are not deductible on your tax return. However, if you make improvements to your home for medical purposes such as adding entrance-and-exit wheelchair ramps, making a bathroom handicap accessible, etc. you can deduct those renovations as medical expenses. However, if those renovations increase the value of your home you can't claim them as medical-related expenses.
- Boat or Second Home as a Deduction
If you buy a second home, you can deduct the taxes and mortgage interest on that property as well. A boat can qualify as a second home, provided it includes sleeping quarters, a kitchen and a toilet. However, you cannot deduct the boat loan interest AND a second home.
- Quit Smoking and Save Taxes
Your participation in a smoking cessation program can be considered a medical tax deduction. This deduction can also apply to prescription drugs used to ease nicotine withdrawal. The law is specific about what is considered a deductible expense. Over-the-counter medications such as the nicotine patch and gum are not covered.
- Weight Loss Expenses
The IRS designated obesity as a disease, and with that designation comes some tax deductions. Now, tax payers can write off weight loss expenses, as long as it is medically necessary. The most common situations where a doctor demands you drop a few pounds are when you suffer from obesity, hypertension, heart disease and high cholesterol. Once you get a physician's OK, you can count membership fees in a weight-loss group such as Jenny Craig and Weight Watchers, as well as the costs for separate meetings the group holds. You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. If you need more intense weight control supervision per doctor's orders, the costs of bariatric surgery, FDA-approved weight-loss drugs, physician and hospital-based programs, behavioral counseling, dietitians and nutritionists also are deductible. You cannot, however, include gym, health club or spa membership dues as medical expenses. You can only take the deduction once your expenses exceed 7.5 percent of your adjusted gross income.
- Breast Surgery Expenses
Although you can't typically include unnecessary cosmetic surgery in medical expenses, some cases of breast surgery can be eligible. For example, the IRS states that if you needed breast reconstruction surgery as part of cancer treatment, you can include the cost in your medical expenses. The cost of breast reduction surgery can qualify to be tax deductible if it is medically necessary. If the expense is medically necessary, to substantiate the tax deduction to the IRS should you be audited, you would need a letter stating the surgery and why it is recommended from a medical standpoint.
- The Cost of a Wig
A wig can also be tax-deductible as a medical expense. If the physician recommends the wig after you experienced hair loss due to a medical condition, the wig could be categorized as a medical tax deduction.