Giving gifts and throwing parties can help show gratitude and provide tax breaks

The holiday season is here. During this festive season, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good time to review the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?

Employee gifts

Many businesses want to show their employees appreciation during the holiday time. In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business.

But there’s an exception for noncash gifts that constitute a “de minimis” fringe benefit. These are items small in value and given so infrequently that they are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits aren’t included in your employees’ taxable income yet they’re still deductible by your business. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Key point: Cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small they are and infrequently they’re given.

Customer gifts

If you make gifts to customers or clients, they’re only deductible up to $25 per recipient, per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4 each.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all of a customer’s team members to share) as long as the cost is “reasonable.”

A holiday party

Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there’s an exception for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of employees who aren’t highly compensated and their families. If customers, and others also attend, a holiday party may be partially deductible.

Holiday cards

Sending holiday cards is a nice way to show customers and clients your appreciation. If you use the cards to promote your business, you can probably deduct the cost. Incorporate your company name and logo, and you might even want to include a discount coupon for your products or services.

Boost morale with festive gestures

If you have questions about giving holiday gifts to employees or customers or throwing a holiday party, contact us. We can explain the tax implications.


How businesses can get better at data capture

It would be hard to argue against the notion that almost every kind of business today is data-driven. Without the information you need to run your company — be it financial metrics, marketing demographics or productivity measures — you’d probably fall behind the competition, and fast.

For this very reason, “data capture” has become a critical yet often overlooked capability of most companies. Improving your competency in this area can lead to fewer costly mistakes and quicker reaction times to business opportunities.

All around us

Simply put, data capture is the process of extracting information from a physical source and converting it into a digital format. Digitization allows you to store, organize, search, retrieve and share information quickly, if not in real time.

For decades, measuring productivity and tracking costs related to the delivery of products or services in many industries was a tedious, manual and error-ridden task. Pitfalls included double entries, lost or misfiled paperwork, and misinformation attributable to illegible handwriting.

Fortunately, much of today’s business information has been digitized already in the form of spreadsheets, electronic documents, PDFs, forms and templates, emails, and so forth. Today’s internet-connected mobile apps also make it quick and easy to collect information.

In fact, you can choose from many solutions that automate data capture. Bar codes and QR codes, for example, help companies manage inventory and equipment usage — especially if you can scan them with a smartphone. Another example is signature capture technology, which enables electronic signatures to authorize and track contracts and other approvals.

Meanwhile, cloud-based solutions allow remote users to view documents, drawings, plans and specifications. Smartphones can take pictures and video, which can be quickly uploaded to project management websites or team communication platforms. It’s all data capture. The question is: How can your business get better at it?

Basic steps

When it comes to data capture, what works for one company might not work for another. First, identify your mission-critical data and where it comes from. Pertinent documents may include employee timecards or worklogs, sales reports, marketing studies, financial statements and other financial reporting.

Next, train and equip the appropriate team members to optimally capture data. As mentioned, the right software and mobile apps can enable your employees to grab data as it’s generated, record the information and share it. But be careful not to “silo” data; that is, make it accessible only to a few people. Doing so can inadvertently create bottlenecks that lead to miscommunication and bad decisions.

At the same time, you must secure your data so hackers and unauthorized users can’t corrupt, kidnap or steal it. Data capture and cybersecurity should go hand in hand.

Getting better all the time

The good news about data capture is that, more than likely, your business is already doing it. The trick is recognizing the importance of this tech-related task, getting your employees on board and continuously improving at it. We’d be happy to help you assess your company’s technology costs and look for ways to improve your return on investment.


2024 Q1 tax calendar: Key deadlines for businesses and other employers

2024 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. If you have questions about filing requirements, contact us. We can ensure you’re meeting all applicable deadlines.

January 16 (The usual deadline of January 15 is a federal holiday)

  • Pay the final installment of 2023 estimated tax.
  • Farmers and fishermen: Pay estimated tax for 2023. If you don’t pay your estimated tax by January 16, you must file your 2023 return and pay all tax due by March 1, 2024, to avoid an estimated tax penalty.

January 31

  • File 2023 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2023 Forms 1099-NEC, “Nonemployee Compensation,” to recipients of income from your business, where required, and file them with the IRS.
  • Provide copies of 2023 Forms 1099-MISC, “Miscellaneous Information,” reporting certain types of payments to recipients.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2023. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2023. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2023 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 15

  • Give annual information statements to recipients of certain payments you made during 2023. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date applies only to the following types of payments:
    • All payments reported on Form 1099-B.
    • All payments reported on Form 1099-S.
    • Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 10 of Form 1099-MISC.

February 28

  • File 2023 Forms 1099-MISC with the IRS if you’re filing paper copies. (Otherwise, the filing deadline is April 1.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2023 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2023 contributions to pension and profit-sharing plans.

Court awards and out-of-court settlements may (or may not) be taxed

Monetary awards and settlements are often provided for an array of reasons. For example, a person could receive compensatory and punitive damage payments for personal injury, discrimination or harassment. Some of this money is taxed by the federal government, and perhaps by state governments. Hopefully, you’ll never need to know how payments for personal injuries are taxed. But here are the basic rules — just in case you or a loved one does receive an award or settlement and needs to understand them.

Under tax law, individuals are permitted to exclude from gross income damages that are received on account of a personal physical injury or a physical sickness. It doesn’t matter if the compensation is from a court-ordered award or an out-of-court settlement, and it makes no difference if it’s paid in a lump sum or installments.

Emotional distress doesn’t count

For purposes of this exclusion, emotional distress is not considered a physical injury or physical sickness. So, for example, an award under state law that’s meant to compensate for emotional distress caused by age discrimination or harassment would have to be included in gross income. However, if you require medical care for treatment of the consequences of emotional distress, then the amount of damages not exceeding those expenses would be excludable from gross income.

Punitive damages for any personal injury claim, whether or not physical, aren’t excludable from gross income unless awarded under certain state wrongful death statutes that provide for only punitive damages.

The law doesn’t consider back pay and liquidated damages received under the Age Discrimination in Employment Act (ADEA) to be paid in compensation for personal injuries. Thus, an award for back pay and liquidated damages under the ADEA must be included in gross income.

Court cases

As you may suspect, the IRS and courts often decide that awards and settlements are taxable while many taxpayers feel they should be excluded from taxable income. For example, in one case, a taxpayer was injured while at a hospital. She sued for negligence but lost her case. She then sued her attorney for legal malpractice and was awarded $125,000. The IRS said the amount was taxable because it wasn’t for physical injuries. The U.S. Tax Court and the 9th Circuit Court of Appeals agreed. (Blum, 3/23/22)

In another case, the Tax Court ruled that married taxpayers weren’t entitled to income exclusion for a settlement the husband received from his former employer in connection with an employment discrimination / wrongful termination lawsuit. Although the settlement agreement provided for payment “for alleged personal injuries,” there was no evidence that it was paid on account of physical injuries or sickness. (TC Memo 2022-90)

Legal fees

You can’t deduct attorney fees incurred to collect a tax-free award or settlement for physical injury or sickness. However, to a limited extent, attorney’s fees (whether contingent or non-contingent) or court costs paid by, or on behalf of, a taxpayer in connection with an action involving certain employment-related claims, are currently deductible from gross income to determine adjusted gross income.

After-tax recovery

Keep in mind that, while you want the best tax result possible from any settlement, lawsuit or discrimination action you’re considering, non-tax legal factors, together with the tax factors, will determine the amount of your after-tax recovery. Consult with your attorney on the best way to proceed and we can provide any tax guidance that you may need.


The standard business mileage rate will be going up slightly in 2024

The optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up by 1.5 cents per mile in 2024. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup or panel truck will be 67 cents (up from 65.5 cents for 2023).

The increased tax deduction partly reflects the price of gasoline, which is about the same as it was a year ago. On December 21, 2023, the national average price of a gallon of regular gas was $3.12, compared with $3.10 a year earlier, according to AAA Gas Prices.

Standard rate vs. tracking expenses

Businesses can generally deduct the actual expenses attributable to business use of vehicles. These include gas, tires, oil, repairs, insurance, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is helpful if you don’t want to keep track of actual vehicle-related expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

The standard rate is also used by businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, reimbursements to employees could be considered taxable wages to them.

Rate calculation

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the rate midyear.

Not always allowed

There are cases when you can’t use the cents-per-mile rate. In some situations, it depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it hinges on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct business vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2024 — or claiming 2023 expenses on your 2023 tax return.


Reinvigorating your company’s sales efforts heading into the new year

Business owners, with the year just about over, you and your leadership team presumably have a pretty good idea of where you want your company to go in 2024. The question is: Can you get there?

When it comes to success, the driving force behind most businesses is sales. If products or services aren’t moving off the shelves, literally or figuratively, you’ll likely fall short of your financial objectives. Here are some big-picture ways to reinvigorate your company’s sales efforts heading into the new year.

Review territories and customers

A good way to start is by reassessing your sales territories. The pandemic suddenly and severely curtailed business travel — so much so that some experts believe it will never return to pre-pandemic levels.

If your company has changed its approach to and budget for business travel in recent years, review the geographic routes that your sales staff used to physically traverse. You may see efficiency gains by creating a strategic sales territory plan that’s less focused on travel and more aimed at aligning salespeople with regions or markets that contain their most winnable prospects.

Also, as always, nurture your top-tier customers. If purchases from them have slowed recently, find out why and prioritize reversing this trend. For your sales staff, this may mean shifting focus from winning new business to tending to these important accounts. See whether you can craft a customized plan aimed at meeting a legacy customer’s long-term needs. It might include discounts, premiums and/or extended warranties.

Explore technological upgrades

Too much paperwork used to be a common gripe among salespeople. More often than not, “paperwork” is a figurative term these days, as most businesses have implemented technology to track leads, document sales efforts and record closings. Nevertheless, outdated or overly complicated software can slow sales momentum.

You might conduct a survey to gather feedback on whether your current customer relationship management or sales management software is helping or hindering the efforts of your sales team. Based on the results, you can then make a sensible decision about whether to upgrade or change your systems.

Incentivize staff

One thing about sales that will likely never change is the need to occasionally or regularly incentivize salespeople to go above and beyond. After all, what allows a business to grow is not only retaining top customers, but also creating organic sales growth from new products or services.

Consider creating a sales challenge that will motivate staff to achieve the specific financial results you’re looking for. One facet of such a challenge may be to replace across-the-board commission rates with higher commissions on new products or “tough sells.”

Investigate other ways to incentivize your team as well. Examples include boosted commissions or bonuses based on:

  • Actual customer payments rather than billable orders,
  • Increased sales to current customers,
  • Number of prospects converted, or
  • Number of customers who agree to prepay.

Ultimately, be sure to align commissions or other sales compensation methods with your company’s carefully projected and clearly communicated financial objectives.

Ring in the new year

Here’s hoping your business rings in the new year with sales on an upward trajectory and a sales staff fully equipped and motivated to be as productive as possible. We can help you generate or assess realistic sales projections and identify optimal, obtainable financial objectives.


Don’t overlook taxes when contemplating a move to another state

When you retire, you may think about moving to another state — perhaps because the weather is more temperate or because you want to be closer to family members. Don’t forget to factor state and local taxes into the equation. Establishing residency for state tax purposes may be more complex than you think.

Pinpoint all applicable taxes

It may seem like a smart idea to simply move to a state with no personal income tax. But, to make a wise and informed decision, you must consider all taxes that can potentially apply to a state resident. In addition to income taxes, these may include property taxes, sales taxes and estate taxes.

If the state you’re considering has an income tax, look at the types of income it taxes. For example, some states don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

Check to see if there’s a state estate tax 

The current federal estate tax doesn’t apply to many people. In 2023, the federal estate tax exemption is $12.92 million (increasing to $13.61 million in 2024). But some states levy estate tax with a much lower exemption, and some states may also have an inheritance tax in addition to (or in lieu of) an estate tax.

Make sure to establish domicile 

If you make a permanent move to a new state and want to make sure you’re not taxed in the state you came from, it’s important to establish legal domicile in the new location. The definition of legal domicile varies from state to state. In general, domicile is your fixed and permanent home location and the place where you plan to return, even after periods of residing elsewhere.

When it comes to domicile, each state has its own rules. You don’t want to wind up in a worst-case scenario: Two states could claim you owe state income taxes if you establish domicile in the new state but don’t successfully terminate domicile in the old one. Additionally, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state estate taxes.

The more time that passes after you change states and the more steps you take to establish domicile in the new state, the harder it will be for your old state to claim that you’re still domiciled there for tax purposes. Five ways to help establish domicile in a new state are to:

  1. Change your mailing address at the post office,
  2. Change your address on passports, insurance policies, will or living trust documents, and other important documents,
  3. Buy or lease a home in the new state and sell your home in the old state (or rent it out at market rates to an unrelated party),
  4. Open and use bank accounts in the new state and close accounts in the old one, and
  5. Register to vote, get a driver’s license and register your vehicle in the new state.

If you’re required to file an income tax return in the new state, file a resident return. And file a nonresident return or no return (whichever is appropriate) in the old state. We can help you make these decisions and file these returns.

Make an informed choice

Before calling the moving truck to relocate in retirement, do some research and contact us. We can help you avoid unexpected tax surprises.


3 types of internal benchmarking reports for businesses

As each year winds to a close, owners of established businesses can count on having plenty of at least one thing: information. That is, they have another full calendar year of financial results to peruse, parse and ponder over.

Indeed, you shouldn’t let this valuable data go to waste. Within your company’s financial statements lies a treasure trove of insights that can help you spot trends, both positive and negative.

That’s where benchmarking comes in. It can take several forms, but let’s focus on three types of internal benchmarking reports that can be particularly useful.

1. Horizontal analysis

A relatively easy starting point is to put two of your company’s financial statements side by side and compare them. In accounting, a comparison of two or more years of financial data is known as horizontal analysis. Differences between the years are typically shown in dollar amounts or percentages.

Naturally, what you’re hoping to find is growth. For instance, if accounts receivable increased from $1 million in 2022 to $1.2 million in 2023, that’s a difference of $200,000 or 20%. Horizontal analysis helps identify such trends. It’s then up to you and your leadership team to explain what caused them and, in the case of this example, keep that trendline moving in a positive direction.

You can also use horizontal analysis to sharpen your understanding of your business’s profitability. While public companies usually focus on earnings per share, private companies generally want to look at profit margin and gross margin. Rather than analyze only the top and bottom of the income statement (revenue and profits), you may want to drill down and compare individual line items such as the cost of materials, rent, utilities and payroll.

2. Vertical analysis

Vertical analysis works its magic within one year’s financial statements. Essentially, each line item in that set of financial statements is converted to a percentage of another item — often revenue or total assets. Accountants typically refer to financial statements that have been subject to vertical analysis as “common-size” financial statements.

For example, a common-size income statement that shows each line item as a percentage of revenue would explain how each dollar of revenue is distributed between expenses and profits. Alternatively, from a profitability standpoint, vertical analysis could show the various expense line items in the income statement as a percentage of sales. This would show whether and how these line items are contributing to your profit margin.

3. Ratio analysis

Ratios also depict relationships between various items on a company’s financial statements. For instance, profit margin equals net income divided by revenue. Ratios are typically used to benchmark a business against its competitors or industry averages. But you can use ratios internally as well.

Within a single set of financial statements, for example, you might calculate total asset turnover (revenue divided by total assets). This ratio estimates how many dollars in revenue the business generated for every dollar it invested in assets. Generally, the more dollars earned, the better. You can also, of course, compare ratios from one year to the next or over longer periods.

Know your options

Many companies use a combination of horizontal, vertical and ratio analyses over time to highlight positive trends and catch operating inefficiencies. What’s important is knowing your benchmarking options and maximizing the value that your financial statements can provide. For help choosing and executing the optimal benchmarking methods for your company, contact us.

© 2023


Defer a current tax bill with a like-kind exchange

If you’re interested in selling commercial or investment real estate that has appreciated significantly, one way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange. With this transaction, you exchange the property rather than sell it. Although the real estate market has been tough recently in some locations, there are still profitable opportunities (with high resulting tax bills) when the like-kind exchange strategy may be attractive.

A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, like-kind is broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Asset-for-asset or boot

Under the Tax Cuts and Jobs Act, tax-deferred Section 1031 treatment is no longer allowed for exchanges of personal property — such as equipment and certain personal property building components — that are completed after December 31, 2017.

If you’re unsure if the property involved in your exchange is eligible for like-kind treatment, please contact us to discuss the matter.

Assuming the exchange qualifies, here’s how the tax rules work. If it’s a straight asset-for-asset exchange, you won’t have to recognize any gain from the exchange. You’ll take the same “basis” (your cost for tax purposes) in the replacement property that you had in the relinquished property. Even if you don’t have to recognize any gain on the exchange, you still must report it on Form 8824, “Like-Kind Exchanges.”

However, in many cases, the properties aren’t equal in value, so some cash or other property is added to the deal. This cash or other property is known as “boot.” If boot is involved, you’ll have to recognize your gain, but only up to the amount of boot you receive in the exchange. In these situations, the basis you get in the like-kind replacement property you receive is equal to the basis you had in the relinquished property reduced by the amount of boot you received but increased by the amount of any gain recognized.

How it works

For example, let’s say you exchange business property with a basis of $100,000 for a building valued at $120,000, plus $15,000 in cash. Your realized gain on the exchange is $35,000: You received $135,000 in value for an asset with a basis of $100,000. However, since it’s a like-kind exchange, you only have to recognize $15,000 of your gain. That’s the amount of cash (boot) you received. Your basis in the new building (the replacement property) will be $100,000: your original basis in the relinquished property ($100,000) plus the $15,000 gain recognized, minus the $15,000 boot received.

Note that no matter how much boot is received, you’ll never recognize more than your actual (“realized”) gain on the exchange.

If the property you’re exchanging is subject to debt from which you’re being relieved, the amount of the debt is treated as boot. The reason is that if someone takes over your debt, it’s equivalent to the person giving you cash. Of course, if the replacement property is also subject to debt, then you’re only treated as receiving boot to the extent of your “net debt relief” (the amount by which the debt you become free of exceeds the debt you pick up).

Unload one property and replace it with another

Like-kind exchanges can be a great tax-deferred way to dispose of investment, trade or business real property. But you have to make sure to meet all the requirements. Contact us if you have questions or would like to discuss the strategy further.

© 2024


It’s possible (but not easy) to claim a medical expense tax deduction

One of your New Year’s resolutions may be to pay more attention to your health. Of course, that may cost you. Can you deduct your out-of-pocket medical costs on your tax return? It depends. Many expenses are tax deductible, but there are several requirements and limitations that make it difficult for many taxpayers to actually claim a deduction.

The rules

Medical expenses can be claimed as a deduction only to the extent your unreimbursed costs exceed 7.5% of your adjusted gross income. Plus, medical expenses are deductible only if you itemize, which means that your itemized deductions must exceed your standard deduction. Due to changes in the Tax Cuts and Jobs Act, which generally went into effect in 2018, many taxpayers no longer itemize.

Eligible medical costs include many expenses other than hospital and doctor bills. Here are some items to take into account when determining a possible deduction:

Transportation. The cost of getting to and from medical treatment is an eligible expense. This includes taxi fares, public transportation or using your own vehicle. Car costs can be calculated at 21 cents per mile for miles driven in 2024 (down from 22 cents in 2023), plus tolls and parking. Alternatively, you can deduct your actual costs, including gas and oil, but not general costs such as insurance, depreciation or maintenance.

Insurance premiums. The cost of health insurance is a medical expense that can total thousands of dollars a year. Even if your employer provides you with coverage, you can deduct the portion of the premiums you pay. Long-term care insurance premiums also qualify, subject to dollar limits based on age.

Therapists and nurses. Services provided by individuals other than physicians can qualify if they relate to a medical condition and aren’t for general health. For example, the cost of physical therapy after knee surgery does qualify, but the cost of a personal trainer to help you get in shape doesn’t. Also qualifying are amounts paid for acupuncture and those paid to a psychologist for medical care. In addition, certain long-term care services required by chronically ill individuals are eligible.

Eyeglasses, hearing aids, dental work and prescriptions. Deductible expenses include the cost of glasses, contacts, hearing aids, dentures and most dental work. Purely cosmetic expenses (such as teeth whitening) don’t qualify, but certain medically necessary cosmetic surgery is deductible. Prescription drugs qualify, but nonprescription drugs such as aspirin don’t, even if a physician recommends them. Neither do amounts paid for treatments that are illegal under federal law (such as marijuana), even if permitted under state law.

Smoking-cessation programs. Amounts paid to participate in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible expenses. However, nonprescription gum and certain nicotine patches aren’t.

Weight-loss programs. A weight-loss program is a deductible expense if undertaken as treatment for a disease diagnosed by a physician. This could be obesity or another disease, such as hypertension, for which a doctor directs you to lose weight. It’s a good idea to get a written diagnosis. In these cases, deductible expenses include fees paid to join a weight-loss program and attend meetings. However, the cost of low-calorie food that you eat in place of a regular diet isn’t deductible.

Dependents and others. You can deduct the medical expenses you pay for dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for an individual, such as a parent or grandparent, who would qualify as your dependent except that he or she has too much gross income or files jointly. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them.

Track eligible costs

As you can see, for deduction purposes, many expenses are eligible. Keep track of your outlays and we’ll determine if you qualify for a deduction when we prepare your tax return.

© 2024