Clients want the most deductions they can get on their returns- of course, understandable- but many deductions clients provide are not allowable tax deductions. They will debate- but ultimately these ‘deductions’ will not show up on their returns.
“Contributions of my time”: in order to get a charitable deduction, the deduction must be of cash or property- the value of your time (if you donate your services) is not deductible. You may however deduct the cost of materials or supplies you incurred in connection with your donated services.
“Contribution to my favorite political election campaign”: contributions to political organizations or to individuals are not deductible.
“Cost to attend a charity dinner”: if you paid $50 to attend a charity dinner, you really only purchased a meal, which of course is not deductible. Unless you receive an acknowledgement letter stating there is a deductible portion of your contribution, you cannot deduct any of it. The same applies to charity auctions.
“Bad debts of my cash-basis business”: your customer who owes you thousands of dollars, which you’ve determined you’ll never get- sorry- but since you never reported this as income in the past, you cannot take it as a deduction. Any costs associated with this bad debt (cost of inventory sold, etc) were already deducted when you bought them.
“Mileage to and from work”: business related mileage going to and from client locations, meetings, or to a satellite office will qualify for a mileage deduction- but sorry, your normal commute mileage to work does not.
“Credit card interest”: actually was deductible back in the day (eliminated during Reagan’s presidency). Some will claim their personal credit cards contain business expense- best practice is to get the credit card in the name of your business/company- then you may deduct the interest as a business expense.
“Clothing for work”: general rule of thumb- if you can get away with wearing it outside of your job it is likely not deductible. However, specialty clothing or shoes (such as nurse’s uniforms and specialty footwear) is deductible.
Although items like these are presented on a regular basis, I would still advise that if you think something might possibly be a deduction, bring it up to your preparer. A good preparer will provide you with an organizer and questionnaire to help you identify possible deductions that you may not have thought of or even known are deductible- so always look for this and spend the time going over it to ensure you get all the ‘real’ deductions you are entitled to.
Written by Scott Gallagher, CPA