Although the tax code permits a wide range of deductions for taxpayers in various situations, thousands of filers routinely claim deductions for various types of expenses that are in fact non-deductible. Here is a list of some of the more common non-deductible expenses that show up on tax returns each year.
1) Spousal and Child Support
Many taxpayers try to deduct these two forms of familial support on their returns. However, alimony is the only type of income paid by one ex-spouse to another that can be deducted.
2) Unreimbursed Work Expenses
Although self-employed taxpayers can deduct every dollar of work-related expenses, W-2 employees are limited on the amount of unreimbursed work expenses they can deduct - and only those who are able to itemize their deductions can take advantage.
3) Above-the-Line Deduction for Roth IRA Contributions
Unlike traditional IRA contributions, there is no deduction for Roth IRA contributions because the income distributed from them is tax-free, whereas traditional IRA and retirement plan distributions are taxable as ordinary income.
4) Political Contributions
Cash or property donations to any qualified 501(c)(3) organization are deductible, but political parties do not fall into this category. So unfortunately, the money you sent in to your candidate or party of choice doesn't go anywhere on the 1040.
5) Homeowners' Insurance
The only time that this can be deducted is for those who either use part of their home for business or for those who own rental properties. Homeowners outside these categories cannot deduct their homeowners' or rental insurance under any circumstances.
6) Life Insurance Premiums
Except for a small amount that can be purchased inside a qualified plan, life insurance premiums are non-deductible for individuals. Group life insurance premiums can be deducted by employers within certain limits.
7) Dependents Whom You Cannot Claim
Many separated and divorced couples race to claim some or all of their dependents each year whether they can or not. The IRS has a fairly clear set of rules that determine who gets to claim which kids. However, both parents often try to claim the same dependent in the same year, thus causing the return of the one who files second to be rejected. Those in this category who are legitimately entitled to claim a dependent or dependents must take up their case with the IRS and furnish proof that establishes their eligibility.
8) Substantial Contributions of Tangible Property to Charities
Although the entire amount of any property that is donated to charity can be deducted eventually, the dollar limits for this type of contribution are lower than for cash. So make sure that your property does not exceed these income limits in the year that you give it to your charity.
9) Passive Losses
Tax losses that are generated from certain types of investments or activities, such as partnerships, can only be written off against passive income, which is defined as income for which the recipient had no material role in generating. Passive losses cannot be deducted against active income, such as earnings or investment income.
10) Capital Losses
Although capital losses can be used to offset any amount of capital gains, they can only be deducted against a portion of other income each year. If you flushed your $50,000 nest egg down the toilet last year in the stock market and had no gains to declare it against, then you will only be able to deduct some of that loss as a long or short-term loss each year.
If you try to write the entire balance off at once, the IRS will gently inform you that you will have to prorate the loss over the next few year. Unless, of course, you reap a large gain in the future, in which case you can write off as much of the remaining loss as there is against whatever amount of gain you have earned.
The Bottom Line
This is only a list of the more common deductions that taxpayers frequently attempt to claim. If you are unsure whether a specific expense that you incurred during the year is deductible, visit the IRS website at http://www.irs.gov/ or consult your tax professional.