Is it a Tax Deduction? Truthiness May be Telling You Yes, But the IRS Says No

Comedian Steve Colbert coined the stunt word truthiness in the 2005 pilot of his political satire program “The Colbert Report”. It was named Merriam-Webster’s word of the year in 2006. What is it? If you haven’t heard already, truthiness is a quality characterizing a “truth” that a person making an argument or assertion claims to know intuitively “from the gut” or because it “feels right” without regard to evidence, logic, intellectual examination, or facts. During the upcoming tax season, there may be some expenses that you incurred or donations that you made that your gut is telling you should be a tax deduction, but they are not. Don’t get tripped up. Here’s a list of some common misconceptions when it comes to tax deductions.

• Entertaining Business Clients – The IRS assumes that while you may be forwarding real business purpose at that dinner or show you take a client or colleague to, it also assumes that you are personally enjoying at least part of the entertainment yourself. Therefore, you can only deduct 50 percent of the cost of the entertainment on your tax return.

• Donating to Non-Qualifying Charities – Not all non-profit organizations qualify with the IRS for a tax deduction. Before you donate, ask a representative of the charity if it is IRS qualified, or the IRS provides an online search tool to check organizations for eligibility. There may be other ways to claim these expenses, but if it’s not an authorized charity then it can’t be claimed as a charitable contribution.

• Donating to a Political Candidate or Campaign – Even if your political candidate may be strapped for cash, the IRS does not consider donations to his or her campaign a charity, and you may not claim the donation as a deduction.

• Traveling and Conducting Business – If you, or you and your family, are traveling out of town, and you squeeze in some time to visit business clients, or attend business meetings or seminars, you may not be able to deduct the full amount if you’re claiming the deduction on your personal tax return (the rules for business returns are different in this area). Like entertaining business clients above, the IRS assumes that if you’re claiming the expense on our personal return, you are also utilizing a portion of your trip for pleasure. Any expenses incurred on the trip that fall under entertaining business clients you can deduct half the cost, but everything else the IRS considers your vacation.

• Commuting to Work – The IRS does not allow you to take a deduction for your expense incurred while commuting to work, no matter how far away from the office you live. If you have to travel from the office to another worksite or meeting, this commute, starting from the point of your office, may be deductible. Remember that the rules for reporting these types of expenses on a business return differ from the personal return rules.

If you have questions as to which expenses or donations qualify as a tax deduction, or need any other assistance regarding your tax return, the professionals at Nielsen Law Group can help you today. Call (480) 888-7111 or submit a web request here.