Taking advantage of applicable tax deductions is often a very effective way of reducing one’s tax burden. Tax deductions typically work by reducing one’s taxable income, so he or she may have less tax liability.
It is important to note, taxpayers who want to benefit from the tax deductions described below will likely have to file itemized tax deductions as opposed to the standard IRS deduction. To learn more about how to use itemized deductions, visit the IRS webpage about Topic 500 – Itemized Deductions.
Tax Deduction #1 – Prescription Drugs & Exercise Programs
A taxpayer may deduct expenses relating to prescription drugs and exercise programs when the treatments are prescribed to treat a condition diagnosed by a physician.
According to the IRS webpage about Topic 502 – Medical and Dental Expenses, “Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body … You may deduct as an expense any medicine or drug that is a prescribed drug or is insulin (even if such drug is available without a prescription).”
Tax Deduction #2 – Child and Dependent Care Credit
A taxpayer may deduct expenses relating to the cost of child and dependent care when the taxpayer is actively looking for work or working.
According to the IRS webpage about Topic 602 – Child and Dependent Care Credit, the requirements for a qualifying individual for the child and dependent care credit are:
- Your dependent qualifying child who is under age 13 when the care is provided
- Your spouse who is physically or mentally incapable of self-care and lived with you for more than half the year
- A person who is physically or mentally incapable of self-care, lived with you for more than half the year and either: (i) is your dependent; or (ii) could have been your dependent except that he or she is over the gross income limit or files a joint return, or you (or your spouse, if filing jointly) could have been claimed on another taxpayer’s 2014 return
Tax Deduction #3 – Work Uniforms or Unreimbursed Employee Expenses
A taxpayer may deduct expenses relating to the cost and upkeep of work clothes when they are “required and not suitable for everyday use.”
In addition, a taxpayer may deduct expenses stemming from unreimbursed employee expenses. According to the IRS webpage about Publication 529 – Main Content: Unreimbursed Employee Expenses, a qualifying expense may be deductible if it is common and accepted in your trade, business or profession.