Already need help sticking to your New Year's resolutions? Perhaps you're tired of eating egg-white omelets without bacon. Or maybe the nicotine patch you bought isn't cutting it. Oddly enough, the Internal Revenue Service might be able to help boost your shaky resolve with some welcome tax breaks. "Whether intentional or not, some tax preferences offer incentives for keeping the New Year's resolutions that many of us are making for 2006," says Bob D. Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly journal written for tax professionals.
You can only take advantage of some of the tax breaks mentioned in this column if you itemize your tax return. According to the most recent statistics from the IRS, just less than 33 percent of the nation's 129 million individual taxpayers itemize. But other advantages are available to anybody who stumbles across them.
Here are some deductible resolutions:
- Lose weight. Since nearly one out of every three American adults is obese, shedding pounds is always one of the most popular resolutions that is successfully ignored. I can tell that, just by the number of newcomers who show up at my gym every January and then disappear before Valentine's Day.
If you are obese, however, the IRS will consider the cost of a weight-loss program, such as Weight Watchers or Jenny Craig, a medical expense.
The government hasn't bothered to define obesity, so it's up to your physician to decide whether the label fits. Even if you aren't obese, you can claim a weight-loss program as a medical expense if your physician concludes that it would help an existing health problem, such as diabetes or a heart condition.
There is a considerable hurdle, however, to using this medical expense to shrink your tax return. You can only deduct medical costs from your income tax return if they equal at least 7.5 percent of your adjusted gross income. There is a way, though, to wiggle under this hurdle. If you have established a health-care flexible spending account at your workplace, you can use that pretax money to pay for the weight-loss program.
- Quit smoking. If you sign up for a smoking cessation program, it's also considered a deductible medical expense. So you can save by paying for this cost through a workplace health-care account or by meeting the 7.5 percent AGI test.
- Improve your job skills. Suppose you wish to return to school to burnish your skills in your present job or help you advance within your current profession. If you do this, you can deduct your tuition, as well as the cost of books and periodicals. This deduction won't fly, however, if you've trudged back to school to switch careers. An electrical engineer, for instance, can't expect a tax break if he wants to take courses in creative writing. To capture this deduction, you must itemize your return, and miscellaneous expenses must reach at least 2 percent of your adjusted gross income.
- Learn for the fun of it. Even if your quest for knowledge isn't motivated by a potential career advancement or raise, the IRS may still reward you. Perhaps you'd like to immerse yourself in metaphysics, study the Old Masters or become acquainted with European existential literature. You could qualify for the same tax breaks that young college students routinely receive, such as the Hope and Lifetime Learning credits.
Older students are most likely to qualify for the Lifetime Learning Credit, which provides a 20 percent credit for the first $10,000 of eligible college expenses, such as tuition and other fees. Textbooks aren't covered.
What's nice about a credit is that it's better than a tax deduction. Regardless of your tax bracket, every dollar of any tax credit directly reduces what you owe on your federal tax tab. Not everybody will qualify for the Lifetime Learning Credit, though. If you're married and file jointly, you won't be eligible if your AGI exceeds $110,000, and for singles the ceiling drops to $55,000.
- Declutter. If you crave more storage space, as well as an extra tax break, grab a box of trash bags and spend an afternoon in your garage or head to your worst closet. If you liberate your junk and dispatch it to a charity, you might be amazed at how much you can deduct from your taxes.
Let's suppose you've got a Nordic Track that's been haunting you ever since you buried it in a corner of the garage. If it's in excellent condition, you can claim a $182 deduction. You can get up to $415 for a computerized treadmill in top shape, while an electric hedge trimmer could fetch up to a $40 deduction, and a leather purse $28. Featherweight items can also add up quickly: a man's cardigan sweater $9, a girl's T-shirt $6, and a fancy dress $37.
I pulled these figures, which vary depending on the condition of the items, from "ItsDeductible Tax Year 2003 Workbook" that provides fair market values for more than 2,000 commonly donated items. My book is a little dated, but I'm sure not by much. The paperback and a software version, which is updated yearly by Intuit, can be obtained at www.itsdeductible.com.
If you want to get really ambitious and donate your car, you probably won't enjoy as generous a tax deduction as you would have a year ago. Until 2005, you could claim the fair market value of the car you were eager to unload, but a lot of fellow drivers assumed they could claim the Blue Book value - or suggested retail price - instead. The IRS had no intention of being that generous, so the rules changed for the 2005 tax year. Now, if your car is worth more than $500, your deduction will typically be limited to what the charity manages to pocket for it. The charity will send you a statement with the sale price, which is what you must pass along to the IRS.