Some Common “Not-Really” Deductible Expenses
Chatting with colleagues, we’ve noticed some interesting trends in the inquiries we get regarding itemized deductible expenses. The Tax Cuts & Jobs Act of 2017 shook up decades of common knowledge of formerly deductible expenses, such as moving expenses. Here is a list of some common “Not-actually” deductible expenses:
- Donations to non-501c3 nonprofits – A business owner received mail from a well-known environmental nonprofit soliciting donations. He ordered his bookkeepers to donate a neat sum to that nonprofit. However, weeks later when they were reviewing expenses with the boss, they did a little research and realized that donation did not qualify as a deductible expense! The environmental nonprofit was classified as a 501c4 “social welfare” nonprofit entity and not a 501c3 nonprofit where donations are eligible for an income tax deduction. Before donating to a nonprofit, utilize the “Tax exempt Organization search” by the IRS to see the type of nonprofit that entity is and ensure they’re a 501c3 so that donations are tax-deductible.
- Commuting expenses – One client described how she drives 55 miles one way from her home to her work, which has been a common reality for Southern Californians for some time. Unfortunately, commuting expenses from your home to your place of work aren’t income tax deductible. However, expenses related to temporary work locations from your home may be tax deductible, e.g. working temporarily at a project site location for a week while commuting from home every day.
- Over-the-counter medicine – Deductible medical expenses cover a wide spread, but one notably common misconception is the cost of over-the-counter medicine. Example: if your doctor recommends an over-the-counter pain medication for lower back pain, you cannot deduct the cost of that medicine. Medicine has to be prescribed by your doctor and paid out of pocket to be deductible.
- Moving expenses – Prior to 2018, certain moving expenses were deductible if you were relocating due to work. However, the deduction is now currently only available to active military taxpayers through 2025.
- Casualty & theft losses – Another deduction shaken up by the TCJA. Before it went into effect in 2018, taxpayers were able to claim an itemized deduction on losses related to theft & casualty losses such as a faulty toaster suddenly causing your house to burn down. Currently, casualty & theft losses can only be claimed if the federal government declares a “disaster zone” in your area.
MiklosCPA has always been about helping people stay well-informed, whether through the details of a client’s bookkeeping or informative pieces for curious readers on interesting tax tips. As a California-based CPA firm, we help emerging and specialized firms navigate the plethora of tax and accounting questions they will eventually face. How can we help your business? Schedule a time and let’s chat. Want to stay in touch? Follow our social media pages.
