Below is a list of some of the more common non-deductible expenses that show up on tax returns yearly. The fact is, the US tax code allows a wide range of deductions for taxpayers in many varying cases, but thousands of taxpayers who file their income tax routinely claim deductions that are non-deductible.
1. Spousal and Child Support
Alimony is the only type of income paid by one ex-spouse to another that can be deducted.
2. Unreimbursed Work Expenses
W-2 employees can only deduct unreimbursed expenses in excess of 2% of their adjusted gross incomes – and only those who are able to itemize their deductions.
3. Above-the-Line Deduction for Roth IRA Contributions
Traditional IRA and retirement plan distributions are taxable as ordinary income so there can be a deduction there.
4. 529 Plan Contributions
There is no federal deduction available for 529 plan contributions.
5. Political Contributions
Cash or property donations to any qualified 501(c)(3) organization are deductible, but that does not include political parties.
6. Homeowners’ Insurance
The only time that this can be deducted is for those who either use a portion of their home for business or for those who own properties that they rent out.
7. Life Insurance Premiums
Life insurance premiums are non-deductible for individuals except for coverage available inside Section 125 Cafeteria Plans and a small amount that can be purchased inside a qualified plan. Meanwhile, group life insurance premiums can be deducted by employers within certain limits.
8. 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, albeit complex set of rules that determine who gets to claim which kids. In some cases, one parent will get to claim the dependency exemption, while the other is eligible for the Child Tax Credit or Dependent Care Credit.
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, such as a divorce decree, that establishes their eligibility.
9. Substantial Contributions of Tangible Property to Charities
Cash contributions of up to 50% of adjusted gross income (AGI) are deductible, but property donations have a limit of 20% or 30% of AGI.
Make sure that your property does not exceed these income limits in the year that you give it to your charity. (Being generous has never been more (financially) rewarding!
10. Passive Losses
Passive losses cannot be deducted against active income, such as earnings or investment income.
11. Capital Losses
Although capital losses can be used to offset any amount of capital gains, they can only be deducted against $3,000 of other income 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 for the next 17 years. 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.
This is not an exhaustive list. If you are not sure about a specific expense if it’s deductible or not, visit the IRS website. (Source: Yahoo! Finance)