Getting Greedy With Deductions
It's easy to get carried away when you start itemizing deductions, especially if you own your own business. The more receipts you add to the expense pile, the lower your taxable income. Suddenly every Office Depot purchase and Panera breakfast starts to look like a legitimate business expense. Be super careful, though. The IRS might start to wonder how a taxpayer whose business routinely loses money can afford a $3,000 mortgage payment and four dependent kids.
- Home office: The IRS greatly simplified the home office deduction in 2013 — a flat $5 per square foot — but there are still strict rules for what qualifies as an office. The space needs to be used "regularly and exclusively" for business and it must be your "principal place of business." A laptop on your kitchen table is not a home office.
- Medical expenses: You can deduct medical expenses not covered by insurance, but only the amount that exceeds 10 percent of your adjusted gross income (7.5 percent if you're 65 or older).
- Charitable donations: Make sure the organization qualifies as tax exempt. Also, all donated items must be in "good or better" condition, so your worn sweaters may not count.