You’re closing in on finding ways to reduce your 2015 income tax bill and send the IRS your tax return. Be careful. Some tax deductions and credits have floors; others have limits; most have qualifications and some things you think you can write off aren’t allowed at all.
Below, a guide to what you can’t deduct on your taxes ormaybe can’t deduct. One caveat: taxes are complicated, so consult a qualified tax pro if you have any questions.
Tax Breaks With Strings Attached
The Alternative Minimum Tax effect Virtually all of your exemptions begin to phase out if you’re subject to the dreaded Alternative Minimum Tax (AMT), the biggest string attached.
“Most people who pay the AMT live in areas with high local real estate and income taxes or have other high deductions,” says Stan Veliotis, a CPA, tax attorney and associate professor of accounting and taxation at Fordham University’s Gabelli School of Business.
You can’t deduct most improvements made to a personal residence. That’s not the case with upgrades made to a home office, though.
To see if you’ll owe the AMT, as an estimated 10 million people will for 2015, recalculate your Alternative Minimum Taxable Income (AMTI) on a separate tax form if your 2015 taxable income was greater than $83,400 and you’re married filing jointly, $53,600 if you’re filing as a single or head of household or $41,700 if you’re married filing separately. Few deductions, or preference items, are allowed under the alternative system.
“Computing AMTI starts with adjusted gross income and adds back preference items or recalculates business deductions at a lower rate, says Mark Steber, chief tax officer at national tax preparer Jackson Hewitt. Once you determine the AMTI, Steber adds, deduct the AMT exemption (those dollar amounts noted above). Then you’ll be taxed at a rate of either 26 percent or 28 percent on what remains after the exemption.
Medical expenses You can’t deduct any of medical expenses until the total exceeds 10 percent of your 2015 adjusted gross income. And then you can write off only the amount over the 10 percent threshold.
One exception: For people who were 65 or older at the end of 2015, the floor is 7.5 percent of income (that percentage will increase to 10 percent for the 2017 tax year and beyond). “This is an age when income goes down and medical expenses go up, so it’s easy for some to exceed the floor and qualify for the deduction,” says Steber.
Be careful about medical expenses you hope to claim as deductions. Got a face tuck last year? You can’t write it off. Most cosmetic surgery, reimbursed medical expenses (such as from insurance), most non-prescription drugs and diet foods also won’t make the cut.
Student loan interest This write-off has a ceiling, not a floor. You can deduct up to $2,500 of 2015 student loan interest you paid for you, your spouse or your children. The deduction phases out, however, for single taxpayers with 2015 incomes of $65,000 and higher and joint tax filers with incomes of $130,000 and above.
Home improvements Sorry, you can’t deduct the cost of most improvements made to a personal residence. That’s not the case with upgrades made to a home office, though. Not only are home office improvements usually fully deductible, but some other household improvements may be, too, when you have a home office. For example, you can deduct 15 percent of a new furnace’s cost if your office comprises 15 percent of your home.
Disability accommodations, including wheelchair ramps and handrails made for dependents, qualify as medical deductions, according to Steber. These costs are deductible if, when included with other medical costs, they exceed the thresholds noted above.
Business travel If you mixed business and pleasure on a trip last year, but the primary purpose of the trip was to transact business, you can deduct all the costs of your transportation, lodging and half of your meal expenses. But if the main purpose was personal, you can’t deduct any of your travel costs. And if you extended your stay for a vacation or had other personal activities while traveling, you can only deduct the business-related expenses.
You can’t write off travel costs for a spouse or child unless he or she was your employee or business associate and had a business reason to take the trip.
For a foreign trip, the IRS will consider the trip entirely for business if you were outside the U.S. for a week or less, even if you combined personal activities with it. If you were gone for more than a week, the trip will be considered fully business only if you spent less than 25 percent of the time there on nonbusiness activities.
Dependent care You can’t deduct as dependent care any costs you incurred for your 30-year-old after he or she returned home. You can, though, claim a child and dependent care credit for a child 12 or younger and, in some cases, if you cared for a family member who lived with you for at least half the year and wasn’t physically or mentally capable of providing their own care.
What You Can’t Deduct
Credit card interest Personal credit card interest hasn’t been a deductible expense since the Tax Reform Act of 1986 passed, but business owners can write off interest on their cards for business purchases they made.
Gym membership Unless a physician prescribed going to a gym for a specific medical condition, forget about claiming this expense.
Child support It’s not allowed as a write-off, but you can deduct spousal support.