By CPA Trendlines Research
Senior citizens (and others) often have misconceptions about the deductibility of certain expenses.
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Here are 10 of the most commonly misunderstood to share with your clients.
1. Personal Living Expenses
Basic living expenses such as rent, food and utilities are not tax-deductible. Pretending to be a business or charity organization does not make them deductible and will only increase IRS scrutiny.
2. Medicare Part A Premiums (if paid via Social Security)
If you’re automatically enrolled in Medicare Part A and aren’t paying premiums, you can’t deduct the “cost” because it’s covered through Social Security.
3. Social Security Taxes
The Social Security tax itself is not deductible from your federal taxes, and the benefits received may be taxable, depending on your income.
4. Life Insurance Premiums
Premiums paid for life insurance policies are considered personal expenses and are generally not deductible.
5. Funeral Expenses
Funeral or burial costs are considered personal expenses and aren’t deductible for income tax purposes. And no, a burial plot is not considered a primary residence or business property.
6. Commuting Costs
Expenses for commuting to and from a job, if you’re still working, are not deductible, regardless of age, though “commuting” to medical appointments is.
7. Personal Loans and Credit Card Interest
Interest on personal loans or credit cards for personal expenses isn’t deductible (with the exception of student loan interest).
8. Hobby Expenses Over Hobby Income
Expenses for hobbies are not deductible if they exceed any income generated by that hobby, nor are hobby-related losses deductible. If you want to claim deductions for a hobby, establish it as a business and report the income.
9. Over-the-Counter Medications and General Supplements
Over-the-counter medications, vitamins and supplements that aren’t prescribed by a doctor are not deductible as medical expenses.
10. Gifts to Individuals
Money or gifts given to family members, friends or other individuals is not deductible, although there are gift tax exclusions that might apply. (The recipients, however, can deduct a certain amount of gifts.)
These exclusions mean that, while there are several tax benefits available to seniors, personal or lifestyle-related expenses generally do not qualify as deductible items. There are exceptions and exemptions, of course, and a good tax pro can point them out to seniors and others. To avoid an IRS audit, avoid dubious deductions.