With tax season on the horizon, you may have begun your search for that elusive golden fleece of tax deductions – the write off that no one else has, as of yet thought of. Of course, you have already interrogated your accountant who most certainly is hiding unused deductions in the bottom left drawer of his desk just waiting for you to ask.
As most of our articles have focused on what is actually deductible, we will instead turn our attention to items that you may intuitively think are deductible, but aren’t – so let’s begin our glass half-empty discussion.
- Pledges
As far as charitable contributions are concerned, you are allowed to deduct money that you actually gave, not what you promised to give (i.e. a pledge). For example, if you agree at a July fundraising event to annually donate $1,000 to a qualified charity with bi-monthly payroll withholdings, you can only deduct the portion that was actually withheld in 2015. The remainder would be claimed on your 2016 return, the year when such amounts are withheld.
- Quid Pro Quo Contributions
In general, quid pro quo means something given in return for something else. In the context of charitable contributions, a quid pro quo contribution is a payment made by a donor to a charity as a contribution as well as in exchange for goods or services received from the charity. A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75. If you attend a church function whereby you give $150 and receive a dinner valued at $80, you have made a quid pro quo contribution, of which you may only deduct $70. Even though the deductible portion does not exceed $75, a disclosure statement must be provided to you since your payment exceeds $75.
- Political Contributions
While it may be great that you support your local congressman and that his election would benefit society, those donations are not tax deductible, regardless of whether you give money to a specific candidate, or a group working on a candidate’s behalf.
- Work as a Volunteer
It is honorable that you spent countless hours each week last fall to coach your son’s football team, teaching twenty 9 year olds the fundamentals of the sport, while simultaneously appeasing thirty-eight parents (you and your spouse not included). As an accountant, you may even have volunteered for the thankless job of keeping the football club’s books and acting as its treasurer. Or perhaps you are a carpenter who built the field snack stand with materials provided by the club. The fact remains that you cannot deduct the value of your time on your taxes. You can, however, deduct out of pocket expenses you incur in connection with performing these tasks for such things as supplies and travel to do that work.
- Home Improvements
You may have spent your hard earned money making your home into a palace. But unless you use a portion of your home primarily for business such as a rental apartment, home office or inventory storage, you cannot deduct the cost of such expenditures. You may, however, be able to reduce the gain on a future sale of your home, so keep a file of those receipts for possible future use.
- Closing Costs to Purchase a Home
Most closing costs paid in connection with the purchase of a home, with the exception of mortgage points and property taxes paid at closing, are not deductible. This includes escrows for such items as property taxes and insurance. They are instead added to the cost basis of your home to determine any future gain on its sale, so keep your closing statement in a safe place. In the case of property tax escrows, future disbursements made by the bank on your behalf from your escrow account are deductible in the year paid for those that itemize on their returns.
- Broker’s commissions for IRA or other investment property
Fees and commissions paid to execute transactions are not currently deductible but are instead added to the cost of the respective security. This lowers the gain or increases the loss realized on a future sale of the stock. Periodic advisory and investment management advisory fees charged to your portfolio account may be deductible as a miscellaneous deduction to the extent that the aggregate of your miscellaneous deductions exceeds 2% of your adjusted gross income.