No, your Lamborghini does not qualify as a hot dog cart
The IRS will readily allow business owners to deduct or depreciate anything from a hand saw to a Zamboni as a legitimate business expense, so long as it is used specifically for business. It then falls to accountants like St. Louis, Missouri-based CPA Joe Eckelkamp to help clients discern the difference between a business tool and an ill-advised tax bluff.
"I had a client who wanted to claim a deduction for a four-wheel ATV at a farm because it was 'needed to check the fence lines' regularly (and not because they used it for fun!)," he recalls.
A Minnesota Society of CPAs member recently chimed in with this beauty: "A real estate agent tried to deduct a riding lawn mower for, apparently, the sole purpose of 'trimming' the grass around for sale signs on their listed properties."
Hey, isn't that what golf clubs are for?
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Didn't she used to date Freddie Mac?
New Jersey CPA Gail Rosen routinely helps clients deduct the eligible interest they've paid during the year on student loans for themselves or their children. But all that springtime buzz about the lender who's underwriting the higher education of 30 million students left one fortunate young client feeling, well, left out.
"I had prepared taxes for a young person recently out of college early in the season and she had a nice small refund," Rosen recalls. "A few weeks later, she nicely questioned me about a deduction all her friends at work had taken and were talking about. She said, 'All of my co-workers are talking about this "Sallie Mae" deduction. What is that? Did you take that Sallie deduction for me???"
Rosen stifled a chuckle. "I told her to go right back to her parents and give them a big hug, kiss and thank you for her not having a student loan and this 'Sallie deduction,'" she recalls. "She got it and laughed, too."
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So that's how you put the exes in taxes!
For years you've had two cars, but do you really need both? Could you Uber it? Or just walk? People 65 and older spend more on transportation than they do on health care, according to the Bureau of Labor Statistics. But nobody ever talks about how outrageously high that expense is, says Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab and the New England University Transportation Centers Program.
"A good New Year's resolution is to think about how you will provide yourself in retirement with access to the things you need and the things you love at a cost you can afford," Coughlin says.
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The (nondeductible) joys of sex
One of the enduring attractions of tax season for accountants is the tears-inducing laughter they'll savor at the outrageous schemes by which clueless taxpayers attempt to trick Uncle Sam into paying for their various romantic peccadillos.
New Jersey CPA Marty Abo recently went 10 rounds with a client who insisted he should be allowed to deduct the cost of prostitutes and porn as "therapeutic."
"I cited him a Tax Court Memorandum from 2009 (Halby v. Commissioner) in which a tax attorney tried to deduct as medical expenses approximately $121,000 he shelled out over a two-year period for prostitutes," Abo recalls. "Alas, the Tax Court ruled that the Internal Revenue Code does not sanction deductibility for illegal operations or treatment, and the prostitute visits were not prescribed by a physician nor to treat a particular medical ailment."
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But I thought it was up to them to send me one!
Now that electronic tax filing has become the rule rather than the exception, it's often the arcane details of old-school snail mail that sidetrack an accountant's best-laid plans, as Gail Rosen found out recently.
"I filed an amended tax return for a client close to the three-year deadline that allows him to still receive a refund. I repeatedly told him to send it certified mail, return receipt requested," Rosen recalls.
"When the refund had not been received for several months, I confirmed with him that he did in fact mail it the way I told him. He said he did. I said, 'Great! Please send me the receipt.' To which he replied, 'I did mail it certified mail, return receipt requested, but you didn't tell me to keep the receipt!'
"Thankfully, it all ended up working out," says Rosen.
On the other hand, Bingo's campaign expenses might qualify
Man's best friend has inspired some of the most doggone craziest tax deduction schemes we've ever seen, most a variation on writing off Fido as a ferocious business security system. But San Francisco CPA Larry Pon added a new one to the list: the campaign promise predicament.
"A client brought in detailed records and receipts for her expenses for her dog," Pon recalls. "I asked what they were for and she said they were deductions on her tax return. It turns out she had read an article in Parade magazine that talked about a proposed law to allow the deduction of vet bills and expenses for caring for a pet."
Enter Pon with the buzzkill: "I told her this was never passed; it was a proposal written by a Michigan congressman who was trying to get votes from constituents with pets," he explained to his client.
"What politicians do for votes!"
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And sometimes the wackiest thing about a tax deduction is …
Finally, here's a feel-good wacky tax deduction that restored New Jersey CPA Christopher Arunkumar's faith in the goodness of mankind, as well as the tax code.
"I was doing the tax return for a basketball player on the New York Knicks and he had about $40,000 in charitable deductions," Arunkumar recalls. "I told him, 'Before I do your return, I want to make sure you and I are on the same page.'" After all, accountants automatically look askance at numbers that large as they are invitations for an IRS audit.
"But sure enough, he had checks supporting the $40,000 and letters from each church. Six months later, the IRS wanted to see documentation that the taxpayer made these contributions. I just forwarded the copies and the matter was closed. The client was making half a million dollars, and for him, $40,000 was nothing."