In our very long and complex tax code, tax deductions come in all shapes and sizes, and have a lot of sticky rules attached to them. For example, business expenses must be ordinary (common and accepted in an industry) and necessary ...
Clients who are casual gamblers can deduct losses from gambling on their personal tax return, up to the amount of gambling winnings. However, as shown in a case, Bon Viso, TC Memo 2017-154, resolved earlier this month you can’t deduct any losses if you don’t itemize deductions and keep the records required to back up your claims. The basic rules are as follows: If you incur gambling losses.
In our very long and complex tax code, tax deductions come in all shapes and sizes, and have a lot of sticky rules attached to them. For example, business expenses must be ordinary (common and accepted in an industry) and necessary (helpful and appropriate for the trade or business) to be deductible. If your clients itemize deductions, they can deduct medical expenses paid for themselves, spouses and dependents to the extent they exceed 7.5% of adjusted gross income. Under the Tax Cuts and Jobs Act, you can no longer deduct miscellaneous employee business expenses subject to the 2% adjusted gross income threshold.
- Keeping a gambling diary, and specifically, tracking your gambling losses is a powerful tool in obtaining deductions of what you owe to the state or federal government at the end of the tax year. Therefore, many gamblers want to make sure they know how to prove gambling losses to the Internal Revenue Service (IRS) or any tax office around the.
- Job Expenses and Certain Miscellaneous Itemized Deductions: Expenses that exceed 2% of your federal AGI: None: Gambling losses: Gambling losses are deductible to the extent of gambling winnings. All deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling.
- The IRS requires that you report the money as income, although it does allow you to claim a deduction for at least some of your losses. Gambling winnings include income from wagers, bets, lotteries, sweepstakes, raffles, prizes, awards, contests—even that digital blackjack table provided by your local casino on the internet while casinos are.
Review the following list of expenses to help your clients stay compliant and minimize their tax liability. Excerpts were taken from Publication 502, Medical and Dental Expenses, and Publication 529, Miscellaneous Deductions. Please refer to these publications for a more complete list of tax deductions.
Medical Expenses
Deductible
- Alcoholism Treatment: Amounts paid for inpatient treatment at a therapeutic center for alcohol addiction, including meals and lodging provided by the center during treatment.
- Fertility Enhancement: The cost of the following procedures to overcome an inability to have children:
- In vitro fertilization, including temporary storage of eggs or sperm.
- Surgery, including an operation to reverse prior surgery that prevented you from having children.
- Guide Dog and Service Animals: The cost of buying, training and maintaining a guide dog or other service animal to help a person who is visually impaired, hearing disabled or has another physical disability. Expenses include food, grooming and veterinary care to maintain the health of the animal so it can perform its duties.
- Stop Smoking Programs: However, you cannot include amounts paid for drugs that don’t require a prescription, such as nicotine gum or patches.
Not Deductible
- Weight Loss Programs: You’re not allowed to deduct the cost of a weight loss program if the purpose is the improvement of appearance, general health or sense of well-being. However, you can deduct the expenses if the weight loss treatment is for a specific disease diagnosed by a doctor (e.g. obesity, hypertension or heart disease).
- Nonprescription Drugs and Medicine (except for insulin): A prescribed drug requires a prescription by a doctor to be deductible.
- Health Club Dues: Includes amounts paid to improve your general health. or to relieve your physical or mental discomfort. and is not related to a medical condition.
- Cosmetic Surgery: Includes procedures directed at improving one’s appearance but does not meaningfully promote the proper function of the body or prevent or treat an illness or disease. Examples include face lifts, hair transplants, hair removal or liposuction. You can deduct cosmetic surgery if it is necessary to improve a deformity arising from a congenital abnormality, personal injury or disfiguring disease.
Miscellaneous Deductions
Deductible
- Gambling Losses to the Extent of Gambling Winnings: Gambling losses include wagers plus expenses incurred in connection with the conduct of a gambling activity, such as travel.
- Casualty and Theft Losses on Income-Producing Property: Investment property includes stocks, notes, bonds, gold, silver, vacant lots and works of art.
- Federal Estate Tax on Income in Respect of a Decedent: This is gross income the decedent would have received if the death didn’t happen and was not properly included on the decedent’s final tax return.
- Fines and Penalties: In general, fines and penalties paid to a government or specified non-government entity for the violation of any law are disallowed, except for the following situations:
- Amounts paid for restitution.
- Amounts paid to come into compliance with the law.
- Taxes due.
- Certain court orders where no government agency is a party.
- Home Office: You can take a home office deduction if you use part of your home regularly and exclusively for business purposes.
- Club Dues: The following organizations are not treated as clubs organized for business, pleasure, recreation or social purpose (unless one of the main purposes is for entertainment):
- Boards of trade
- Business leagues
- Chambers of commerce
- Civic or public service organizations
- Professional organizations
- Real estate boards
- Trade associations
- Losses from Ponzi-Type Investment Schemes: Deductible as theft losses from income-producing property.
Not Deductible
- Unreimbursed Employee Expenses are not Deductible, unless you fall into one of these categories:
- Armed Forces reservist
- Qualified performing artist
- Fee-basis state or local government official
- Employee with impairment-related work expenses
- Campaign Expenses: This applies to a candidate for any office and includes qualification and registration fees and legal fees.
- Commuting Expenses: The transportation cost going from your home to your main or regular place of work is not deductible. However, there is an exception is for Armed Forces reservists, qualified performing artists, fee-basis government officials and employees with impairment-related work expenses. They can deduct the additional cost of hauling tools, instruments, or other items in their car to and from work.
- Fines and Penalties:
- Amounts paid to settle your actual or potential liability for a fine or penalty (civil or criminal).
- Parking tickets and tax penalties.
- Restitution paid to come into compliance with the law (unless the amounts are specifically identified in the settlement agreement or court order).
- Reimbursement to the government for the cost of an investigation or litigation.
- Lobbying Expenses:
- Influence legislation.
- Participate or intervene in any political campaign for or against any candidate for public office.
- Attempt to influence the general public about elections and legislative affairs.
- Communicate directly with executive branch officials to try to influence official actions.
- Club Dues: This includes the membership in any club organized for business, pleasure, recreation or social purpose. Examples include athletic, luncheon, sporting, airline, hotel and country club.
- Political Contributions:
- Political contributions made to a political candidate, campaign committee or newsletter fund.
- Advertisements in convention bulletins and dinners and programs that benefit a political party or candidate.
Enhance Your Trusted Advisor Role
Feel free to share this information with your clients and prospects to help grow your practice and bolster your role as a trusted advisor. Your clients will be delighted for every tax dollar saved!
Even though you probably just filed your taxes in July, thanks COVID, it’s never too early to get a head start on the one you’ll file in April 2021. The reason? There are several changes that you may have overlooked because, well, there was a lot going on in 2020.
Gambling Loss Tax Deduction
To quickly catch you up to speed, your taxes will differ in 2021 in the following ways:
- Higher Health Savings Account (HSA) Limits. Self-only coverage will increase $50 to $3,550. Family coverage will increase $100 to $7,100.
- Waived RMDs. Because of the Coronavirus Aid, Relief, and Economic Security Act of 2020, aka the CARES Act, waived required minimum distributions (RMDs) for 2020.
- Higher Income Brackets. Due to inflation, tax brackets tend to fluctuate annually. For next year, however, expect income tax brackets to rise. For example, if you’re single and make $85,525 to $163,300 it will rise 24%.
- Increased Contribution Limits For Limited Workplace Retirement Accounts. After being adjusted for inflation, the base contribution limit for 401(k) plans is now $19,500, which is $500 more than the previous year.
- A More Valuable Earned Income Tax Credit. Both the income limits and the maximum credit will be higher for EITC. For example, if married and filing jointly, it will go up from $55,952 to $56,844.
- A Higher Cap on Payroll Taxes. Not the most welcome news for some. But, Social Security payroll taxes rose to $137,700 for 2020.
Of course, you should review these changes over at irs.gov. And, definitely speak with a specialist. But, at least you have an idea of what to expect.
Additionally, you should anticipate some new deductions on your taxes for 2021. For those unfamiliar, tax deductions are kind of important as they can reduce your Adjusted Gross Income or AGI. In turn, this will reduce your overall taxes, increase your refund, and decrease the taxes you owe.
Now, there are two deduction methods you can employ. The first is the standard deduction which is a dollar amount that non-itemizers can subtract from their income prior to the application of income tax. The second is itemized deductions which are eligible expenses individuals can claim as tax-deductible.
What method you chose ultimately depends on your specific situation. Let’s say that your itemized deductions are more than your standard deduction amount. If so, then you might want to go with itemized deductions.
After deciding on your preferred method, you should know that eligible Tax Deductions Expenses must take place during the tax year — Jan. 1 – Dec. 31. The exception? Retirement or health plan contributions as long as they aren’t made beyond the Tax Return Due Date.
With all that out of the way, let’s take a closer look at what you can deduct on your taxes in 2021.
1. Home mortgage interest.
“The mortgage interest deduction is a common itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase, or make improvements upon their residence, from taxable income,” explains Julia Kagan for Investopedia. “The mortgage interest deduction can also be taken on loans for second homes and vacation residences with certain limitations.”
“The amount of deductible mortgage interest is reported each year by the mortgage company on Form 1098,” adds Kagan. “This deduction is offered as an incentive for homeowners.” How so? By making homeownership more affordable.
2. Student loan interest.
Did you pay interest on your student loans in 2020? If yes, then you’re able to deduct up to $2,500 from your taxable income. Just note that will phase out if you’re modified adjusted gross income (MAGI) is $70,000 ($140,000 for taxpayers filing a joint return). But, if your MAGI hits $85,000 ($170,000 for taxpayers filing a joint return) this deduction is not eligible.
3. Standard deduction.
The IRS states that the “standard deduction is a specific dollar amount that reduces the amount of income on which you’re taxed.” Because of inflation, it’s normal for these to rise each year. For 2020, the amounts are:
- Married filing jointly: $24,800 — that’s up to $400 from 2019.
- Married individuals filing separately: $12,400 — a $200 increase.
- Head of household: $18,650 — that jumps up to $300.
- Single: $12,400 — an increase of $200.
If you’re eligible, you may want to consider going this route since it lowers the amount of your income that is subject to federal taxes. For example, if you’re single and meet the qualifications that you won’t be taxed on the first $12,400 of your income.
4. American opportunity tax credit.
Did you spend some of your hard-earned money on tuition, books, equipment, or school fees? If so, then you can claim all of the first $2,000 that you spent on these educational costs. From there, you can deduct 25% from the next $2,000. Overall, that’s a total of $2,500
Just note that this does not apply to house and transportation. And, most importantly, it’s meant for first-time college students.
5. Lifetime learning credit.
Are you a higher education candidate? Did you take some classes to improve your side hustle or advance your career? If the answer to either is so, then you can claim 20% of the first $10,000 you paid toward tuition and fees.
And, just like the AOTC, you can include books and supplies. But, housing and transportation are a big no.
6. SALT.
Did you know that you’re allowed to deduct state And local real estate and personal property taxes (SALT)? Yes? Well, did you also know that you can deduct state and local income taxes or general sales taxes up to $10,000 as well?
To do this, you will have to use, the itemized method. However, if the new standardized deduction amount exceeds the itemized amount, you might want to reconsider.
7. Child and dependent care tax credit.
If you care for a child under the age of 13, parent, or incapacitated spouse then can claim a credit for up to $3,000. For two or more, it would be $6,000. Just be prepared to provide relevant proof of your expenses.
8. Child tax credit.
Parents can receive up to $2,000 per child. Eligible dependents are biological, step, and foster children under the age of 17. But, it can also include siblings, grandchildren, niece/nephew, or adopted children.
9. Saver’s credit.
Did you make contributions to either an individual retirement account or employer-sponsored retirement plan? You did? First, congrats on wisely preparing for your future. Secondly, you may be eligible for a non-refundable tax credit.
The catch? You must be over the age of 18, are not a full-time student, and are not claimed as a dependent by someone else. Also, the crest amount varies depending on AGI. Usually, this is $32,000 if you’re a single filer or less than $64,000 if married and filing jointly.
10. Medical and dental expenses.
Even if you have a solid insurance plan, there will out-of-pocket expenses. Examples could be hospital care, treatment for substance abuse, fees to specialists, or payments for things like glasses. Beginning in 2020, the threshold amount increased to 10% of AGI — previously it was 7.5%.
11. Charitable donations.
“Usually, you can only write off tax-deductible donations to charity on your federal tax return if you itemize your deductions rather than take the standard deduction — and the latter has become far more common since the 2017 overhaul of the federal tax code,” writes Karla Bowsher for MoneyTalkNews.
“But in an effort to encourage Americans to donate money to charity during the coronavirus pandemic, the CARES Act enabled taxpayers to deduct up to $300 in monetary donations in 2020 — even if they take the standard deduction.”
12. Residential energy credit.
Are you all about energy efficiency? If so, and you made upgrades to your home, then you can obtain an energy credit — usually 30% of the installation cost. These include:
- Solar energy systems.
- Energy-efficient windows and doors.
- Insulation.
- Roofs.
- Energy-efficient cooling and heating systems.
- Biomass stoves.
- Small wind turbines.
13. Home office expenses.
Considering that you probably spent most of 2020 primarily working from home, this is a deduction that should be a priority. As such, you may be able to write off costs like rent, mortgage interest, utilities, real estate taxes, repairs, or inventory.
14. Adoption credit.
In 2020, the maximum allowable credit amount is $14,300. That’s up from $14,080 in 2019.
15. HSA contributions.
Do you have a health savings account? If so, then any contributions you made are not subject to federal taxable income. Even better? You can claim your contributions as a deduction. Please note that this will vary depending on factors like your plan, age, and when you became eligible.
16. Reinvested dividends.
As TurboTax explains, this isn’t a tax deduction per se. Instead, it’s “a subtraction that can save you a lot of money. And it’s one that many taxpayers miss.”
Let’s say that you’re all about earning a passive income. If so, you probably have it set up where mutual fund dividends are automatically invested in any extra shares. However, “each reinvestment increases your ‘tax basis’ in the stock or mutual fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.”
“Forgetting to include the reinvested dividends in your cost basis—which you subtract from the proceeds of sale to determine your gain—means overpaying your taxes.”
17. Job searching.
Searching for a new job can be stressful — especially during these trying times with a global pandemic in the background. If it’s any consultation, however, you can deduct preparing, printing, and mailing your resume, as well as transportation and employment agency fees. The caveat is that the job hunt must be in the same line of work as your current job.
18. IRA and 401(k) contributions.
You can absolutely deduct any contributions you made into a traditional IRA. The amount, however, will vary depending on factors like how much you make and if your spouse has a retirement plan through their week.
Gambling Loss Deduction 2021 Irs Deduction
And, just like the previous year, you can contribute up to $19,500 into a 401(k) without being taxed.
19. Gambling losses.
Don’t get confused by the name here. Gambling loss deductions mean that you can only deduct what you won. So, if you spent $200 on lottery tickets and didn’t win, you can’t deduct that. But, if you did win then your winnings can be claimed.