“Can I deduct this?” When Americans sit down to fill out their income-tax forms on or before the April 15 deadline, that’s the question they’ll likely ask the most.
They may be shocked by how often the answer is “yes,” and the sheer variety of expenses they can deduct. Most people know that business-related items are usually tax deductible — no matter how odd. That could include body oil for a masseuse or professional body builder, says Dave Du Val, vice president of customer advocacy at TaxAudit.com, which is based in Sacramento, Calif. Ditto, free beer used for a sales promotion. But a recent survey showed that only 51% of more than 1,000 people surveyed understood relatively basic questions about their income taxes, and the estimated average $2,840 tax refund for 2017 likely does not include the refunds that people did not know they could claim.
Of course, most people know many charitable donations are deductible, but some people are especially watchful for deductions others might miss. Grafton “Cap” Willey, managing director at CBIZ Tofias, an accounting and professional services provider in Providence, R.I., helped a client who’d bought a house and land — and wanted to build a better house — write off the fair market value of the windows, lumber and other usable items from the property that he donated to a homeless charity. And documentation is critical. “Take a photo with your iPhone of that bag of clothes you donate, and get a receipt. That all counts as evidence.”
To help people think more broadly about the kinds of things they can deduct, here are five unusual tax deductions:
Context is everything when it comes to deductions, especially when expenses are being characterized as being for medical purposes. Johanna Turner, senior partner at Milestones Financial Planning in Mayfield, Ky., had clients who successfully deducted the full cost of a $40,000 swimming pool. “Their child had been injured in an accident,” she says. “They received doctor’s orders for swimming therapy.” The key here is making sure a doctor signs off on the deductions, Turner says. There are also deductions taken for hot tubs and pools as long as they, too, are doctor-prescribed, adds Megan Thompson, a certified public accountant at Thompson Accounting in San Jose, Calif. Upgrading your property for lifestyle or reselling, for instance, would not count.
This may be the most politically and ideologically divisive of all deductions. The IRS says: “You can include in medical expenses the amount you pay for a legal abortion.” So an abortion — which can cost from $500 to $1,000 — could be deductible if it was included with other medical expenses. Taxpayers can also include in medical expenses the amount they pay to purchase a pregnancy test kit to determine if they are pregnant, and the cost of a sterilization or vasectomy. When it comes to all medical expenses, you cannot include those that were paid by insurance companies or other sources, and the total medical expenses in question need to exceed 10% of your adjusted gross income (this falls to 7.5% for those who are 65 or over for all medical expenses).
“If you have gambling gains, you can deduct a large number of expenses to go to Vegas up to the point where it offsets much or all of the gains,” says Scott Bishop, director of financial planning at STA Wealth Management in Houston. You can deduct your losses, but no more than your winnings in that tax year. Gambling income includes winnings from lotteries, raffles, horse races and casinos, and fair market value of prizes such as cars and trips. “To deduct your losses, you must be able to provide receipts, tickets, statements or other records,” the IRS states. For casinos, you need copies of check-cashing records. Some states don’t allow deductions on gambling losses, however.
Service dogs and dog food
Man’s best friends can be another tax-deductible expense. “I had a client with a warehouse deduct the cost of buying guard dogs,” Bishop says. Their pet food may also be deducted. He is aware of one case where a person deducted the cost of transporting their six dogs as a work-related moving expense. Taxpayers may also include as medical expenses the costs of buying, training and maintaining a guide dog or other service animal to assist a person with physical disabilities. This includes any costs, such as food, grooming and veterinary care incurred in maintaining the health of the service animal.
Gender confirmation surgery
In 2010, the federal tax court ruled in favor of a transgender woman, Rhiannon O’Donnabhain, who had taken up a case against the IRS for refusing to allow a $5,000 deduction for $25,000 in medical expenses for gender confirmation surgery, those costs “not compensated for by insurance or otherwise, for medical care of the taxpayer.” In its ruling, the tax court said gender-identity disorder is widely recognized in diagnostic and psychiatric reference texts, and all three experts testifying in the case consider the disorder a serious medical condition, and the mental-health professionals who examined O’Donnabhain found that her disorder was a severe impairment.
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