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Common Things People Wrongly Assume are Tax Deductible

Common Things People Wrongly Assume are Tax Deductible

Many people frown at the idea of sending their hard-earned dollars to Uncle Sam. So, to cushion the effect of taxes, Uncle Sam provided some relief in form of tax deductions and credit to reduce what people pay as taxes. 

However, many people in a bid to save money could take deductions they do not qualify for. Many taxpayers accommodate the idea of deducting expenses they assume can be deducted, yet such expense does not qualify. 

As a result, this article sheds light on some deductions that can raise some eyebrows with Uncle Sam and possibly lead to tax audits.


  1. Entertainment Related to Business

In trying to woo your client, you might need to take your clients out and have a little fun in the process, as assumed by Uncle Sam. 

Before 2018, Uncle Sam allowed deductions of half of the cost you used to entertain a client. For the purpose of records, as well, it is important to document who the client was, alongside the goal of the entertainment. Failure to do this might cancel this deduction if there is an audit. 

This deduction, however, was canceled for the tax year after 2017.


  1. Business Trips

Without a doubt, you can make deductions on business trips even though Uncle Sam makes a clear distinction between business and pleasure. As a result, you might go with your family on vacation and meet with a client one night for dinner. Such dinner can be deducted even though the trip was aimed primarily at pleasure. 

In the same way, you might fly with your partner on a business trip to the Caribbean and stay two extra days. You cannot deduct your partner's flight ticket and the additional days.

 

  1. Commuting Costs

 Uncle Sam believes that if your work is way far from your home, it is your headache. As a result, you cannot deduct any expense you incur from transporting yourself to your primary employment place, no matter the distance.

This, however, does not apply to a self-employed business person who works at a different location in a day as such a person might be allowed to deduct the expenses of commuting from one place to another or fares to meetings.


  1. Unqualified Charity

Do not be fooled by an organization that claims to be nonprofit, as it does not mean that your donations can be deducted because some civic groups and social welfare do not qualify. As a result, you might get the dopamine rush of donating to them, but it doesn’t come with any tax savings.

Also, if you donated to a charity and you got some benefit in return, you must remove the value of the benefit from your donation before you can deduct it.

 

  1. Pledges

Uncle Sam does not allow a deduction for money you promised to give but for funds you gave. So, as a result, you need proof that you gave the money out in the tax year. 

As a result, you might promise to donate $1000 every year to your best charity in November via payroll deduction. But, for consequent years, you are only allowed to deduct what you paid in November.


  1. Political Donations

You might be excited at the idea of having your favorite party win the election, which motivated you to donate; however, such donations will not get you any tax deductions. As a result, any money you give to a political candidate or a group working for a candidate cannot be deducted.

 

  1. Your Time for Volunteering

While monetary donations to charity can be deducted, you cannot deduct the value of your time. 


As a result, a tax professional that helps the church prepare taxes cannot deduct the time involved, calculated at the exact hourly rate you charge a typical customer. However, the silver lining is that one can deduct any expense incurred for supplies that you used to work.


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