What Expenses Qualify for Tax Deduction?

July 10, 2012 by  Filed under: Taxes 

There are various expenses and payments that qualify for tax deductions and therefore, reduce your taxable income. Over the years, different taxpayers and tax professionals have interpreted the tax law to include non conventional expenses for deduction. Some cases have been successful while in other cases, the IRS has declined to accept such deductions and even won court cases to defend their stand. Since this is an area that is prone to misinterpretations and misuse, the IRS is always scrutinizing expenses that are included for deduction. You therefore, need to be careful when including expenses for tax deduction. Below are some of these controversial expenses:

  • Medical Expense – Medical expenses are generally tax deductible. The IRS provides a schedule of qualifying medical expenses to guide the taxpayers and avoid ambiguity. However, by and large, any expenses incurred for medical purposes will be deductible. This includes medicine for rehabilitation of drug addicts, attending a medical seminar of a condition that the taxpayer or a dependent is suffering from, and the mileage costs of travel for medical purposes. However, weight loss expenses not prescribed by a physician are considered lifestyle enhancements and not medical costs. On the other hand, some deduction claims eventually may be approved, as with a taxpayer who underwent a sex change and claimed the expense for deduction had the IRS reverse the deducted costs, but upon appealing in court, won the case against the IRS. The court rules that the sex change was treatment for Gender Identity Disorder which is generally accepted as a medical condition.
  • Business and Work Related Expense – The business related expenses are one of the gray areas when it comes to tax deductions. Generally, all expenses incurred wholly for the business will be allowed for deduction. However, one needs to be careful when deducting expensive business travel, gifts to business acquaintances, home business use and business meals. You need to follow the guidelines provided by the IRS when deducting such expenses. Claiming large and extravagant expenses is a red flag and can easily attract an IRS audit. One of the controversial business expenses claimed in the past was a breast enlargement by an exotic dancer. The dancer argued that the enhancement surgery would increase business opportunity. The court ruled in favor of the dancer. On the other hand, a taxpayer who had deducted his wedding costs as a business expense because he had invited business associates lost his case to the IRS both in the Tax Court and in the Court of appeal. In these cases, it may be wiser to not “push your luck” with the deductions you claim.
  • Dependent – Claiming dependents is yet, another area that is prone to controversies and misinterpretation. One cannot claim a pet as a dependent or deduct expenses incurred on the pet. Dependents will need to be children below the age limit. However, parents may still claim their children below the age of 23 if the children are full time students. Relatives, including parents, may also be included as dependents.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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