Many tax deductions such as charitable donations and business supplies are well known, but some are more obscure. With tax season upon us, here’s a look at how tax deductions work and three deductions you may find surprising.
The Basics of Tax Deductions
Individual taxpayers can claim a wide variety of deductions on their federal taxes. “The basic rules of deductions start by categorizing deductions into two buckets: Above the line and below the line,” Jake Skelhorn, a certified financial planner and partner and wealth advisor at Spark Wealth Advisors, LLC, said in an email.
He explained that above-the-line deductions such as pretax 401(k) contributions, IRA contributions and student loan interest are available whether you take the standard deduction or itemize deductions.
On the other hand, below-the-line deductions can be used only if you itemize deductions. “Examples of common below-the-line deductions are mortgage interest, medical expenses and state and local taxes (SALT),” Skelhorn said.
As for business tax deductions, the IRS requires that business expenses are “ordinary and necessary” in your industry. They don’t have to be indispensable but must be helpful and appropriate for your line of work.
3 Surprising Tax Deductions
With the ground rules of tax deductions in mind, here are three that may surprise you.
[Tax Credits vs. Tax Deductions]
1. Unusual Business Assets
An interesting situation arose when a professional entertainer and exotic dancer tried to depreciate her breast implants on her federal tax return. She claimed they were a necessary stage prop that increased her earnings.
The IRS initially disallowed the request because implants are ordinarily beneficial to individuals on a personal level. The woman argued, however, that the implants were so large that they offered her no personal benefit and instead caused harm to her appearance, health and personal relationships.
The United States Tax Court ended up siding with the woman and allowing the depreciation on the grounds that the implants offered her no personal benefit and were only useful for her business.
2. Organic Food and Salt-Free Meals
The IRS doesn’t generally consider medically prescribed food and beverages as qualified medical expenses because they replace what you normally consume. However, there are exceptions.
In one case, a doctor diagnosed a couple with allergies to chemically contaminated foods, and the wife was found to have a very extreme sensitivity. The couple’s doctor recommended they limit their diets to uncontaminated foods. During a tax year, the couple spent $6,157 on organic food and wrote off about half of the amount as an itemized medical expense.
[Should You Itemize or Take a Standard Deduction on Your Tax Return? Here’s What to Know]
While the IRS initially denied the expense, the United States Tax Court approved it after reviewing the couple’s extensive medical history, testimonies, shopping recipes and pricing research. The specialty food was estimated to cost $3,077 more than nonorganic food and was found to be necessary for the treatment and mitigation of their medical issues.
In another case, a doctor told a man with high blood pressure and heart failure to maintain a salt-free diet. When he ate at restaurants, they charged him an additional fee to prepare meals without salt. The Tax Court decided that the additional fees he paid for salt-free meals were qualified medical expenses.
3. Dog Food, Vet Bills and Other Animal Care Costs
The cost of service and working animals can also be deductible.
If you have a guide dog or service animal that’s trained to assist you or someone in your household with a disability, your related spending can qualify as deductible, below-the-line medical expenses.
For example, if a taxpayer with Post Traumatic Stress Disorder (PTSD) has a service animal that’s trained to keep them calm during an anxiety attack, the person could write off the costs of the animal’s grooming, training, food and veterinary care.
Another deduction is available if an animal serves an ordinary and necessary role in your business.
“For example, if you own a junkyard and have a German Shepherd as a certified guard dog, you can likely deduct expenses for the dog’s care,” Adam Brewer, a tax controversy attorney at AB Tax Law, said in an email.
However, he explained you won’t be able to do the same if you offer accounting services from a home-based office and happen to have a pet poodle.
[READ: Can You Take the Home Office Deduction?]
“You may also qualify for a pet tax deduction if they perform in a way that earns you income. For example, you may be able to write off pet-related expenses if your pet works on a movie set, is a pet influencer, competes in events that offer cash prizes or participates in your business in any other way,” Roxanne Hendrix, a CPA and JustAnswer tax expert, said in an email.
How to Ensure Your Tax Deductions Are Allowed
Along with the above, there are a few other lesser-known deductions.
“Some surprising deductions that are allowed include gambling losses, adoption expenses, casualty (federally declared disasters like hurricanes) and theft losses, mortgage points, home office expenses and moving expenses,” Skelhorn said.
If you have doubts about whether a specific deduction is allowed or not, your best bet is to consult a certified professional.
“Consult with a tax or accounting professional about any deduction you’re not 100% sure about,” Brewer said.
He explained that you shouldn’t rely on TikTok or other social media for your tax advice. “While there’s often a grain of truth to viral ‘advice,’ it’s widely misapplied. Following it could get you in trouble with the IRS,” he said.
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These Are 3 of the Oddest Tax Deductions Ever ? Are You Eligible for One? originally appeared on usnews.com
