Personal Finance > Taxes

Biggest deduction myths
From SUVs and diets to police lunches and work clothes: What you're sure is deductible may not be.
April 9, 2004: 3:10 PM EDT
By Jeanne Sahadi, CNN/Money senior staff writer

NEW YORK (CNN/Money) In case you had any doubts, let's be clear: The U.S. tax code isn't a myth. Byzantine maybe, but not mythic.

Nevertheless, there are certain myths about tax breaks held dear by some taxpayers that are worth debunking before anyone tackles their 1040 this year.

Have a gander at these untrue notions:

Uncle Sam will help you buy that SUV. That may be what a dealer told you, but since when is a car dealer your go-to source for tax information?

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Some consumers, apparently, have come to believe they can get a tax credit just for buying an SUV, according to the National Association of Tax Professionals. Not so.

There was legislation being kicked around in Washington at one point that would have offered a tax credit to buyers of hybrid SUVs, but it didn't become law. (There is, however, a clean fuel tax deduction up to $2,000 offered to owners of some hybrid vehicles, including some Honda models and the Toyota Prius.)

There is a tax break for SUV buyers who are small business owners. In a controversial move, the U.S. government decided to allow taxpayers to write off up to $100,000 for the purchase of a new SUV in the year it is purchased so long as the vehicle is used for business purposes and weighs more than 6,000 pounds.

There is not, however, any tax break if you buy an SUV to tote around your brood.

Hey, honey, guess what? We can write off the house. For some who run home-based businesses, "the myth is you can write off 100 percent of your home," said enrolled agent David Mellem of Ashwaubenon Tax Professionals. The truth is you can only write off the portion of your home that is dedicated to your business.

Among some part-time telecommuters, there is also an assumption that you'll automatically qualify for a home office deduction of some sort. But as with so much in the tax code, the answer "it depends" usually applies.

"The home office deduction is more nuanced than people think," said Jackie Perlman, a senior tax analyst for H&R Block.

For instance, she said, if you work at home occasionally because you prefer it to your cubicle, you may not be able to deduct any home-office expenses since your employer has already provided a space for you at work and has not required that you work at home.

Have medical receipts; will deduct away. Medical expenses may be deductible if -- and it's a huge "if" -- they exceed 7.5 percent of your adjusted gross income (AGI).

That's a higher threshold than you may think and the payoff once you reach it may not be huge. That's because if you do manage to spend 7.5 percent of your AGI in out-of-pocket medical expenses, you'll only be able to deduct the amount above that 7.5 percent.

Remember, "out-of-pocket" means expenses that are not eligible for reimbursement from your health insurer or from your flexible spending plan. "You can't double dip on that," Perlman said.

Say, for example, your AGI is $80,000. To qualify for a medical expense deduction, you'd need to spend more than $6,000 out of pocket. So if you spent $6,010, you'd only get to deduct $10. And that $10 deduction would only reduce your tax liability by $2.50 if you're in the 25 percent tax bracket ($10 X 0.25).

What if you were lazy and didn't submit expenses from reimbursement to your insurer? It's not like you got money for them, so you figure you can include that in your 7.5 percent floor, right? Nice try. If expenses are reimbursable, they are not deductible, Perlman said.

I've dieted, now I'm ready to deduct. That weight-reduction program has done wonders for your waistline, but it probably won't shrink your tax bill.

A weight-loss program may qualify as a deductible medical expense, but only if it meets certain requirements. You can't deduct it unless it your physician prescribed it and it was intended to treat a particular disease.

Obesity is considered a disease, so if you are legitimately obese, that would count. Or if you're not obese but are told to lose weight to, say, lower your blood pressure, that also might make the program a deductible expense.

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But even if you meet those criteria, the cost of a weight-loss program is still subject to the same AGI threshold restrictions as other medical expenses (see above).

So, too, are programs designed to help you quit smoking. Unlike a weight-loss program, however, you don't need a physician's prescription to join a smoking-cessation program.

For more on what are considered deductible medical expenses, click here.

Cops on the beat gotta eat, right? Every year, enrolled agent Cindy Hockenberry of the National Association of Tax Professionals gets asked the same question: Policemen (and firemen) may deduct a per diem for meals eaten while they're on duty, right?

Every year she gives the same answer: No. "It's just a bad rumor that keeps going around. And it won't go away," she said.

I got the nicest dress for work. I can't wait to write it off. In most professions, you might be fired if you came to work in the buff (to say nothing of getting arrested on your way to the office). But just because you have to get dressed for work doesn't mean you get to deduct the cost of your clothes as a work expense.

There is one exception, Hockenberry said. You may deduct the cost of your work clothes if your employer requires you to buy clothing that is specifically not made for everyday wear, such as a uniform or clothing with a company logo.  Top of page

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