Everyone likes to save money on their taxes, but sometimes taxpayers can go too far. Certain expenditures may be completely legitimate—and even seem that they should be tax-deductible —but that doesn’t mean the tax law lets you deduct them.
Here’s a roundup of 15 expenses you cannot write off because the tax law limits or bars them entirely when it comes to deducting them on your tax return.
1. Burial and Funeral Costs
Personal expenses, such as food and clothing, aren’t tax-deductible. The IRS treats burial and funeral costs as a nondeductible personal expense.
2. Charity to Needy Individuals
If you itemize deductions, you may deduct charitable contributions to IRS-recognized organizations—a donation to the Red Cross, say, during a hurricane. But you’re not allowed to write off donations you make directly to an individual, no matter how needy. For example, if your neighbor’s house is damaged in a flood, giving her clothes, food and other personal items may be the right thing to do but the tax law won’t give you a tax deduction for your generosity.
3. Child Support
Payments of alimony to a spouse or former spouse can be deductible if certain conditions are met. But child support payments are specifically nondeductible.
If a divorce decree or separation agreement calls for both alimony and child support, but the payer-spouse pays less than the total required, the payments apply to child support first. Only the excess amount can be treated as deductible alimony.
4. Club Dues
Payments to country clubs, fitness centers or other recreational facilities are not deductible. This is so even if you use the clubs for business purposes, such as networking. However, if you take a customer to lunch at a country club, the meal may be a deductible business expense. If so, then 50 percent of the cost of the meal is deductible.
5. Commuting Expenses
No matter how far you travel, how long the trip or how much it costs you, no deduction is allowed for commuting to or from work. Commuting costs are viewed as nondeductible personal expenses.
6. Contributions to Special Savings Plans
Special savings plans provide tax incentives, such as deferral of tax on earnings and tax-free treatment for qualified distributions. However, contributions are not deductible for federal income tax purposes (there may be state income tax deductions or credits allowed). Examples of special savings plans:
- 529 plans for higher education
- ABLE accounts for disabled individuals
- Coverdell education savings accounts for education
7. Federal Income Taxes
If you itemize deductions, you may be able to write off your state and local income taxes. However, no deduction is allowed for federal income taxes. Similarly, employees can’t claim any deduction for their Social Security and Medicare (FICA) taxes.
8. Hobby Losses
Business losses (expenses in excess of income) usually are deductible. However, if you engage in an activity without having a profit motive, the IRS views you as having a hobby, not a business. As such, you can claim losses only to the extent of any income from the hobby. Unused losses cannot be carried over; they are lost forever.
9. Homeowner’s Expenses
If you itemize, some expenses of being a homeowner are deductible, including mortgage interest, real estate taxes, and casualty and theft losses. However, not all homeowner-related costs are deductible. Examples of nondeductible homeowner’s expenses:
- Home security system (equipment and monitoring)
- Homeowner’s association fees
- Homeowner’s insurance, even if the bank or other company holding your mortgage requires it
- Points on refinancing a mortgage
- Special assessments for local benefits, such as sidewalks and sewers
10. Interest That’s Not for a Permissible Purpose
You can deduct interest on home mortgage, student loans and investment loans within certain limits. But not all interest is deductible. Nondeductible interest includes:
- Credit card interest
- Interest to buy or carry tax-exempt securities, such as municipal bonds
11. Investment Seminars
If you want to learn about flipping houses or investing in the stock market, you must do so without the benefit of a tax write-off. The cost of attending an investment seminar is nondeductible. The cost includes registration fees, as well as travel and lodging needed for attendance.
12. Loss on the Sale of Your Home
Gain on the sale of a personal residence or vacation home is taxable, although gain up to $250,000 for singles and $500,000 for joint filers on a principal residence is tax-free. But a loss on the sale or foreclosure of a home is not deductible. That’s because the tax law bars a loss deduction on the disposition of personal use property. This is so even if homeowners view their homes as an investment.
13. Passive Activity Losses
If you have investments in rental real estate or a business in which you do not “materially participate,” then any loss for the year usually can only be deducted to the extent of your income from that passive activity. The good news is that unused losses can be carried forward and used in future years to the extent there is passive activity income. And if there is a complete disposition of the activity, this frees up carryover losses from that activity. A disposition is a taxable sale or exchange to a third party; a gift isn’t a disposition.
14. Political Donations
Supporting a candidate may be a good civic move, but it isn’t rewarded with a tax deduction. Political donations are nondeductible, regardless of amount. Even the $3 you agree to give to the presidential election campaign by checking a box on Form 1040 is not deductible.
15. Roth IRA Contributions
If you have earned income, you may be eligible to contribute to a Roth IRA to build up tax-free income for the future. However, contributions to the account are not deductible.
Similarly, if you participate in a 401(k) plan, you may have the option of allocating your salary reduction contributions to a designated Roth account. These allocations are made from after-tax dollars; you cannot exclude the contributions from your income.
And There Are More…
These aren’t the only nondeductible expenses that sometimes trip people up. Work with your tax advisor to understand tax-law limits on deducting your expenses—while still maximizing your deductions.