15 Ways To Turn Your Bucket List Into A Tax Deduction
1. Buy a boat and sail around the world. You already know that if you itemize you can deduct mortgage interest and real estate taxes associated with your main home on a Schedule A. But you can also claim (subject to certain limitations) expenses associated with a second home, including a boat, so long as it has sleeping, cooking and toilet facilities—so why not take the plunge? If you get seasick you can satisfy your wanderlust by deducting the mortgage on a mobile home or that foreign castle you covet.
2. Hike in the rain forest or on the Appalachian Trail. You can claim out-of-pocket expenses, including travel, as a charitable deduction if you incur them in the service of a legitimate tax-exempt charity. So if you go to Costa Rica to volunteer in the rain forest or to North Carolina to clear trails, you may be able to deduct the cost of your trip so long as its primary purpose is charitable work.
3. Learn Arabic/Japanese/fill-in-the-blank. The expenses for learning a foreign language for fun may be offset with a Lifetime Learning tax credit worth up to $2,000. This nonrefundable credit equals 20% of the tuition and fees you pay for higher education for an eligible student—including yourself. It can be used for one or more courses for an unlimited number of years. The catch: The credit starts to phase out if your adjusted gross income climbs above $102,000 for a couple or $51,000 for a single.
4. Get married. Okay, you can’t actually write off the cost of the ceremony, but for many taxpayers there is a significant tax advantage to getting married. It may not be the most romantic of reasons, but ticking the “married filing jointly” box on your federal Form 1040 could result in tax savings. So if you’re thinking of popping the question, the numbers are probably on your side.
5. Win a race (or run a marathon). If you run a race just for fun—and you win—you must report your winnings as “other income” on your federal Form 1040. Luckily, you can also claim related running expenses as “miscellaneous itemized deductions” on your Schedule A. These could include entry fees, running shoes and any other expenses that are directly related to running. Keep in mind that your deductions are limited to the amount of your winnings and you can’t carry excess deductions forward or backward.
6. Drive down Route 66 or the Pacific Coast Highway. There’s nothing that says that if you take a business trip you have to do it in the most boring way possible. Why not take a relaxing route? The ordinary and necessary expenses of traveling away from home for your business, profession or job, including travel by airplane, train, bus or car between your home and your business destination, are deductible. Keep records documenting where you went and why, and a log of all your business mileage.
7. Roll the dice at Atlantic City or Vegas. You can deduct your traveling costs only if you’re in a gambling mecca on a legitimate business trip or for volunteer work—not just for fun. But if you itemize, you can deduct your gambling losses, up to the amount of your winnings. You must document your losses: Keep a diary of your bets and save all receipts, tickets and statements showing your losses.
8. Write a book or sell your artwork. If you’re pursuing your lifelong dream of writing the next great American novel—or another creative pursuit that is really just a hobby—you can deduct your expenses if you have any associated income. You can take deductions only up to the limit of your hobby income; you cannot claim a loss.
9. Open a winery/brewery. On the other hand, if your pursuit is a legitimate business (as opposed to a hobby) you can deduct all of your reasonable and necessary business expenses; a winery or a brewery can qualify as a business even if it’s enjoyable—so long as you operate it in a businesslike fashion with the intent of making a profit.
10. Adopt a child. If you’ve always wanted a child—or you’re ready to raise another—consider adoption. You may be entitled to a tax credit to offset—dollar for dollar—up to $12,650 in qualified adoption expenses including court costs, attorney fees, travel and other items directly related to a legal domestic or foreign adoption (but not to a surrogate birth). If you can’t use the whole credit in one year, you can carry it forward. Keep excellent records, including entry visas for foreign adoptions, a final decree, certificate or order of adoption and determination of any special needs status of the child. The adoption credit begins to phase out once your AGI exceeds $189,710.
11. Enjoy a fabulous new living room. You don’t have to buy a new house to qualify for the home mortgage interest deduction: Home acquisition debt includes a mortgage you take out to build or substantially improve your main or second home (so long as the debt is secured by that home).
12. Start a scholarship fund for your alma mater. If you’ve always wanted to be memorialized by your alma mater, consider a scholarship fund with criteria that you select. To be deductible, charitable contributions must be made to qualified organizations: Most colleges and universities fall into that category. The scholarship must be awarded on an objective and nondiscriminatory basis.
13. Build a home office in the backyard. If you use part of your home for business, you may be able to deduct expenses for business use, including those for mortgage interest, insurance, utilities, repairs and depreciation. But the space doesn’t have to be inside your home: You can deduct expenses for a separate freestanding structure, such as a studio, garage or barn, if you use it exclusively and regularly for your business. It doesn’t even have to be your principal place of business or a place where you meet patients, clients or customers.
14. Go golfing/horseback riding/surfing. The tax law generally imposes restrictions on deductions for business and charitable expenses when there is a personal pleasure element. There are, however, some exceptions to this rule, if the main purpose of a sports event is to benefit a qualified charity, the entire net proceeds go to the charity and volunteers perform substantially all the event’s work. If your business pays $1,000 so you can golf with local prospects at a charity tournament, you can deduct the full $1,000, even though the normal deduction would be limited to the greens fees of, say, $100. If you enter as an individual, you can deduct $900 as a charitable contribution—the $1,000 minus the $100 greens fees.
15. Get your college degree. It’s never too late to go back to school. The American Opportunity Tax Credit can be claimed to offset, dollar for dollar, expenses paid for tuition, fees and books for an at least half-time student pursuing a first undergraduate degree at an eligible post secondary educational institution. The maximum credit is $2,500 per student a year and phases out for individual taxpayers with an AGI above $80,000 ($160,000 for married couples).
16. Jump out of a plane. To be fair, I couldn’t think of a way to legitimately write this off on your taxes. But don’t let that stop you: It still sounds terrific.