Our tax code is long and complex. Even tax professionals have to work to stay informed and up to date about all the changes.
Over my nearly three decades as a tax professional, there is a core set of questions that I undoubtedly will get asked every year as April 15 approaches.
Question: Can I write off my business suits? I only wear them to work. What about my haircuts?
I’ve seen professional tax preparers take deductions for clothing and haircuts on tax returns—and they shouldn’t. General grooming is not a deductible expense.
I understand that most of us have to look nice for work; and believe me, if work clothes were tax deductible, I’d be filling my closest with Manolo Blahnik shoes and Gucci apparel. The tax savings alone would be comparable to buying the items on sale. But Uncle Sam doesn’t allow professional attire as a write off.
However, there are some exceptions: When it comes to clothing, costumes that are used in the normal course of your business, but are not suitable for street wear are deductible. This generally applies to performers and musicians. Also deductible are protective gear, uniforms, and clothing emblazoned with the name of your company.
A carpenter may write off his steel-toed boots, his “Bob’s Construction” T-shirt, and any tool bags. He cannot take a deduction for the cost of his blue jeans – even if he wears them only for work. I once encountered an auditor who told me he actually allowed the blue jeans expense for a contractor because he “felt sorry for the guy.” There are so many shades of gray in the tax code it often depends on the mood of the auditor you come up against and his/her perspective and interpretation of the tax code. But don’t count on it. Rules are rules.
I recently (for the first time) took a deduction for a client for a haircut. He’s a lieutenant in the navy and the buzz cut is a “requirement of his employer.” This form of intent supports this as an appropriate employee business deduction. Whether or not it would fly in audit remains to be seen.
Question: Can I deduct the federal income tax I pay every year?
No, you cannot deduct federal income tax. But if you itemize deductions, you are allowed to write off the amounts you pay in state income taxes. This includes state income tax withheld from wages, state disability premiums withheld from your pay, estimated tax payments made during the tax year as well as state income tax payments for the prior year income tax return or any other prior years.
For example, come April 15, 2013, you may have had to pay a state income tax liability for your 2012 tax return due that day. You may list this as a deduction for 2013. And in January of 2013 you may have paid installment 4 of your 2012 state income tax. This is also a deduction for 2013. You may also have been audited for 2010 and owe the state an additional tax liability which you paid during 2013. Take this as a deduction as well.
I find the taxes section of Schedule A to be the most omitted when clients dig for their deductions. I would estimate close to 75% of my clients fail to bring me their vehicle registration fees and some forget all about their property taxes. Did you know that if you own property in a foreign country you can write off the property taxes you pay there?
Question: I’m thinking about buying a house this year but I will have to pay private mortgage insurance (PMI). Is that deductible?
This particular deduction has come and gone a few times over the years. For 2013, PMI is a write off. However, this is one of the 55 tax provisions that expired at the end of 2013 and has yet to be renewed by Congress.
Even if your PMI is not deductible, run the numbers to determine if buying a house will save you tax dollars in the long run. Most of the time owning a home is a wise investment from a tax-planning point of view. Then if the deduction is renewed, you will be all that much better off.
Bonnie Lee is an enrolled agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter and on Facebook.