While many tax deductions are well-known, such as those for business supplies and charity contributions, some are less well-known. Here's a look at how tax deductions operate and three that you might find surprising as tax season approaches.
While many tax deductions are well-known, such those for business supplies and charity contributions, some are less well-known. Here's a look at how tax deductions operate and three that you might find surprising as tax season approaches. (Photo : by Scott Olson/Getty Images)
The Fundamentals of Tax Reduction
There are several deductions available to individual taxpayers on their federal taxes. According to Jake Skelhorn, a certified financial planner, partner, and wealth adviser at Spark Wealth Advisors, LLC, "the basic rules of deductions start by categorizing deductions into two buckets: Above the line and below the line," the email added.
He clarified that you may deduct above-the-line expenses like pretax 401(k) contributions, IRA contributions, and student loan interest regardless of whether you choose to itemize or take the standard deduction.
The IRS stipulates that company costs must be "ordinary and necessary" in your sector in order to qualify for business tax deductions. Although they don't have to be necessary, they should be beneficial and suitable for the task you undertake.
Unusual Business Resources
When an exotic dancer and professional entertainment attempted to deduct her breast implants from her federal tax return, an intriguing scenario resulted. She said they were an essential theatrical item that raised her pay.
Because implants often benefit people personally, the IRS first denied the request. But the woman said that because the implants were so big, they didn't help her personally and instead hurt her relationships, attractiveness, and health.
Since the implants were solely beneficial to her business and did not provide her with any personal gain, the United States Tax Court ultimately sided with the lady and permitted the depreciation.
Since medically prescribed food and beverages replace what you ordinarily consume, the IRS often does not consider them to be eligible medical costs. There are certain exceptions, though.
In one instance, a physician determined that a couple had allergies to meals tainted with chemicals and that the woman was more sensitive to these substances. The doctor advised the pair to restrict their meals to clean items. The couple deducted almost half of their $6,157 organic food expenditure as an itemized medical cost for the tax year.
The United States Tax Court accepted the expenditure after considering the couple's comprehensive medical history, testimonials, shopping recipes, and pricing research, notwithstanding the IRS's initial denial of the claim. The specialist food was determined to be essential for the treatment and alleviation of patients medical conditions, despite having an estimated $3,077 higher cost than nonorganic food.
In a another instance, a physician advised a guy suffering from heart failure and high blood pressure to stick to a salt-free diet. Restaurants charged him more for dishes prepared without salt when he ate there. The Tax Court determined that the extra money he spent on meals devoid of salt qualified as medical costs.
Dog Food, Vet Visits, and Other Animal Care Expenses
Working animals' and services' costs may also be deducted.
Your medical expenditures associated with a guide dog or service animal that is trained to help you or a member of your household with a handicap may be deducted as below-the-line deductible costs.
For instance, a taxpayer with Post Traumatic Stress Disorder (PTSD) may deduct expenses for the animal's food, veterinary care, training, and grooming if the animal is taught to calm the taxpayer down during an anxiety attack.
If an animal plays a regular and essential part in your business, you can deduct even more from your income. However, if you happen to own a pet poodle and operate an accounting business out of your house, you won't be allowed to do the same.
