The U.S. tax code is infamous for its complexity, and when it comes to figuring out what can be deducted from taxes, reading through the legalese in the code can make anyone’s eyes cross.
Still, it’s worth the effort. Deductible expenses are subtracted from the total income you report to the IRS, so the more deductions you can claim, the lower your reported income. That can help lower your tax bill and possibly push you into a lower tax bracket.
Not sure what you can write off on your taxes this year? Don’t sweat it. Read on to find out ways to reduce tax liabilities or even increase the amount of a tax return. You’ll also learn about incorrect deductions that could rack up penalty fees or even flag you for an audit.
What Can Be Deducted from Taxes? What Can’t?
Deductible: Moving costs associated with a permanent change of station or new job.
If you have unreimbursed expenses because of a military-directed move, those costs can be tax-deductible, often without having to meet time and distance tests required of other taxpayers. If you’re not in the military, job-related moving expenses may still be deducted if you itemize (meaning keeping organized paper trail records of related expenses), including job-hunting costs such as career counseling or expenses for traveling to interviews. (See IRS Publication 521, Moving Expenses for all the specific details.)
Not Deductible: The time you spend donating your special skills to a nonprofit or charity.
The IRS specifically excludes the value of your time or services as a charitable deduction, since they’re assuming you’re doing this out of the kindness of your own heart — not for a tax break. That said, if you make an exchange of “quantifiable cash and assets” as a donor to the charities of your choice, there may be some deductions allowed. (See IRS Publication 526, Charitable Contributions for more details.)
Deductible: Alimony paid to an ex-spouse.
Alimony is a payment to or for a spouse (or former spouse) under a divorce or separation agreement. It doesn’t include voluntary payments not made under a divorce or separation instrument. So, the amount the courts say you must pay is deductible. Anything else you choose to pay that isn’t legally mandated isn’t deductible. Generally, alimony will have tax-related effects on both the paying spouse, who can deduct the amount paid, and the recipient, who must report it as taxable. Bonus: You may deduct alimony without having to itemize deductions. (See IRS Publication 504, Divorced or Separated Individuals for more details.)
Not Deductible: Court-ordered child support payments.
Child support is neither taxable nor deductible. According to the IRS, “When you calculate your gross income to see if you are required to file a tax return, do not include child support payments received.”
Deductible: Cost to purchase and maintain military uniforms.
This expense can be tax-deductible if off-duty wear is prohibited. Make sure to reduce the deductible amount of the expense if you’re also receiving some kind of uniform allowance or reimbursement. (See IRS Publication 3, Armed Forces’ Tax Guide for more details.)
Not Deductible: Tuition paid for a child’s private elementary, middle or high school.
Tuition at a private elementary or secondary school is not tax-deductible. But there’s a way to shave off some taxes in this situation if you plan ahead. A Coverdell Education Savings Account allows contributions, investment growth and withdrawals to be tax-free as long as they’re used only for certain pre-college (grades K-12) qualified educational expenses or qualified higher education expenses. (See IRS Publication 970, Tax Benefits for Education for more details.)
Deductible: Work-related education.
To deduct the cost of unreimbursed, work-related education, you must meet one of two IRS criteria: The education helps maintain or improve skills needed in your present work, or the education is required by your employer or the law to maintain your salary, status or job. Classes taken to find a new trade or business don’t qualify, so make sure not to deduct those kinds of expenses from your taxes. (See IRS Publication 970, Tax Benefits for Education for more details.)
Not Deductible: Commission paid to a real estate agent on the sale of your home.
The commission isn’t tax-deductible, but it could have a tax impact. Because it’s considered an expense of selling the home, the real estate agent commission will affect either the profit or the loss on the sale. One special rule available to service members who move a lot may enable them to exclude certain gains, even if they haven’t lived in the house during the past five years from a home’s sell date. (See IRS Publication 523, Selling Your Home for more details.)
Deductible: Travel expenses for Reserve or Guard duties.
When your Reserve or Guard duties take place more than 100 miles from home, you may be able to deduct unreimbursed travel expenses without itemizing. (See IRS Publication 3, Armed Forces’ Tax Guide for more details.)
Deductible: Student loan interest paid by parents on your loan, if your parents don’t claim you as a dependent.
Under this circumstance, you can generally deduct up to $2,500 of student loan interest without itemizing. However, since the student loan debt is ultimately your responsibility and your parents aren’t on the hook for the full amount, they can’t claim the interest deduction even though they’re the ones footing the bill.
Confusing, right? To qualify, your student loan must have been taken out solely to pay qualified education expenses and must have been arranged through a qualified employer plan (in other words, it can’t be a loan from a friend or family member). Also, you must be enrolled at least half-time in a program leading to a degree, certificate or other recognized credential at an eligible educational institution. This deduction is subject to certain modified adjusted gross income limits. In other words: tons of fine print, but still worth investigating if the situation applies. (See IRS Publication 970, Tax Benefits for Education for more details.)
What Can Be Deducted from Taxes: Just the Tip of the Iceberg
These are just some of the deductible expenses we see all the time at USAA, but as you prep for tax season, remember that it’s always a good idea to consult with a tax professional to see if there are even more deductions that can help save you money before the April deadline.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for non-compliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisors regarding your specific situation.
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