An engagement ring is a symbol of love, dedication, and commitment between two people as they decided to spend the rest of their lives together. Engagement rings are usually made of precious stones and metals that cost hundred to more than a thousand dollars. As that day is approaching, people also wonder if such huge price can be deducted from a tax return since these rings are considered properties.
If you plan to propose and purchase the most beautiful ring you see in the store, unfortunately, you may not deduct the cost of the ring from your tax return. This is considered to be a personal choice and it is an unrelated expense to a business venture. An engagement ring is considered a capital gains item rather than a household item, making it ineligible for deduction purposes. Although it is very expensive the IRS sees it be of no different from a daily meal expense or a morning run to the Starbucks. The purchase of the ring is discretionary or a personal decision you make every single day in which tax return deductions is not eligible.
If you are engaged in the business of getting married and ring purchases are considered as an ordinary and necessary expense for the business. Thus, under the circumstance is of no reason be considered as a personal expense but a business expense.
However, valentine’s day is not a very lucky day for you or that the engagement did not end into a marriage or if you are divorced and don’t want to keep the ring, a donation to a charitable entity might be a good choice. In most cases, the donation represents a charitable contribution that you can deduct from your tax liabilities for the year in which you donate the ring. In a claim, the ring as a tax deduction is not doable unless the charitable organization will be able to use or quickly liquidate the ring. Contributions that a charitable entity cannot use are not tax deductible.
You may consider obtaining a certified appraisal of the ring if the ring has increased in value since purchase this might help you maximize your tax deduction. The deductions from your tax liability will be dependent on the length of time you’ve held the ring and its value for there are some restrictions which apply. The Internal Revenue Service only allows you to claim the appraised value of a donated engagement ring if you have had possession of the ring for more than one year. Otherwise, you may only deduct the purchase price of the ring after donating it to a charitable entity. Also, if the value of the ring exceeds 50% of your adjusted gross income for the year, you may only deduct the portion of the value that is equal to 50% of your adjusted gross income, minus the value of any other charitable contributions claimed for the same tax year.
Generally, the cost of the appraisal is not included in the charitable contribution deduction; however, you may deduct the cost of the appraisal as a miscellaneous deduction.
In the meanwhile, you may incur a huge expense to purchase that beautiful engagement ring for that memorable and beautiful day, and the ring itself will not provide any tax benefit, your marriage likely will. Again, while your engagement ring cost can’t be a tax deduction, think about the implications of life changes on your taxes. Writing off wedding costs reduces your tax liability for the certain year and may increase your tax refund but you must also endure audit for your attempted deductions. These write-offs are red flags for the IRS. If you are trying to write off your honeymoon as a business trip, you need to keep a log of activities such as appointments and what business was transacted. That trail of receipts will back up your case.
Lastly, please don’t let this prevent you from getting that ring. The marriage that will follow can greatly reduce your tax exposure. These are only advised on matters of the IRS, definitely not matters of the heart.
Advantage Tax Services, Inc.