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8 nuttiest tax deductions
Did you hear about the write-off for Fido’s air miles? The tax-deductible office skeleton? The Harley-Davidson medical expense? Or the escort who, shall we say, worked from home?
Better call Saul, fellow taxpayers: This year’s annual installment of Bankrate’s craziest, real-life tax deduction tales is breaking bad, extracted without anesthesia from the limbic lobes of some of America’s finest — and sober — certified public accountants.
Past installments have included such ill-advised if not outright delusional tax dodges as meditation yurts, business toupees, friends with tax benefits, tricked-out Amish buggies, doctor-prescribed home gymnasiums, charitable human sperm donations and all manner of pet-related poppycock.
One disclaimer applies to all: Do not attempt these zany stunts on your own federal income tax return. While the IRS is not without a sense of humor, if the punch line to your tax return involves underreporting or filing false or misleading financial data, neither you nor the taxman will be laughing come April 15.
Submitted for your amusement: 8 madcap tax moves for 2015.
Did they work their fingers to the bone?
It you work from a home office, you’re allowed to deduct a like percentage of your home’s expenses, including utilities, mortgage interest, rent, insurance and property taxes, as well as physical upkeep and repair costs, office furniture and even decor. Much the same holds true if you own or lease an office elsewhere.
But CPA Joe Eckelkamp of Eckelkamp & Associates in St. Louis says some of his business clients have tested what the IRS considers “ordinary and necessary” when it comes to writing off their office decor.
“I’ve had any number of odd and/or obscure office decorations that weren’t expensive enough to flag the IRS by raising the ‘collectibles’ issue, but were clearly quirky enough to be tough to say they were part of the business,” he recalls.
One was a Hawken black powder rifle. Another was a 1969 Chevelle, parked at the president’s office but never driven.
But the real puzzler was a human skeleton, which, unless the enterprise was health-related, may not have a femur to stand on.
Who has time to look for a job?
Want to immediately capture the attention of your accountant, not to mention the IRS?
Show up with a fistful of Form W-2, Wage and Tax Statements.
That happened to Christopher Arun Kumar, a CPA with Breakpoint Assurance Co. in Princeton, New Jersey, when a client walked in with 25 W-2s in hand.
“Of course, the IRS would think that fraud was taking place, that somebody was creating these W-2s and trying to file a return,” he says.
Turns out Arun Kumar’s client was entirely aboveboard.
“As a stevedore or dockworker for the Port of Newark, he spends his days loading and unloading ships for multiple shipping companies,” he explains. “When you work for the Port of Newark, because you are a union worker, nothing is under the table or off the books. You have an employee card and every time you work a day, a week, a month loading or unloading a container, you get W-2 income.”
He says the sheer number of W-2s would raise another flag, as well.
“You expect a client to move maybe one or two jobs in a year, not 25,” he chuckles. “This was the strangest return.”
This tax return was in for a rough flight
When it comes to trying to write off pet expenses, creativity can sometimes backfire. For instance, dogs don’t usually pass IRS scrutiny as “security systems” simply by accompanying you to your rental properties, or as “independent contractors” because they pull a wagon for landscaping jobs.
Then again, one forthright attempt at pet-related tax pilferage only induced tears of laughter from Martinsville, New Jersey, CPA Gail Rosen and her staff.
“A client had buried among her business deductions something called ‘pet expenses,'” Rosen recalls. “When we questioned her about it, she said, ‘The pet expense is for pet sitting while I am out of the state, or for airfare for flying the pets when I have brought them with me when I’m out of state for a long time,'” she says.
Rosen informed her client that while the pet expenses no doubt seemed like legitimate business expenses to her, unfortunately, they were not.
“We told her that if it made her feel any better, the same (rule) would apply if the expenses applied to children that had to be watched while she was away or accompanied her on her journeys,” she says.
Make mine a Lexus for lumbago!
Some taxpayers consider a trip to the doctor a prelude to writing off all manner of pastimes and interests in the name of medical therapy.
The two most eye-popping doctor-recommended tax dodges on Bankrate’s crazy list in previous years were the $100,000 swimming pool addition and the $35,000 deduction for ballroom dance lessons, along with $18,000 in gowns and accouterments.
Did the IRS bite? Hardly, although Los Angeles CPA Gregg Wind of Wind & Stern says there is legal precedence for pools, as in the case where a taxpayer with emphysema who swam twice daily improved his breathing capacity.
“The Tax Court allowed him to deduct the cost of the pool as a medical expense, to the extent the cost exceeded the amount it added to the value of the property,” he says.
But the taxman is unlikely to warm to a new medical deduction dreamed up by a client of CPA Larry Pon of Redwood City, California.
“His doctor told him he needed to keep his wrists up and he wanted to know if he could deduct the cost of a Harley-Davidson motorcycle, since those high handlebars will do the job,” Pon chuckled.
The en suite is particularly profitable …
No crazy tax installment would be complete without an obligatory nod to the “working girl.”
When it’s not business-class bon vivants searching for novel ways to write off their after-hours assignations with ladies for hire as travel and entertainment expenses, it’s the female entrepreneurs themselves looking to deduct breast augmentation, tattoos, hair, nails and alluring attire as business expenses.
Eckelkamp encountered one would-be client who had her heart set on one section of the tax code rarely visited by stiletto heels: the home office deduction.
“A very upscale escort wanted to deduct her entire apartment as her ‘office,'” he recalls. “She never became a client when I said it wasn’t possible, but I was glad because I don’t think my wife would have appreciated me working with her.”
The Rx for Beggin’ Strips did look sketchy
Pet lovers don’t have to beg their case to CPA Marty Abo of Mount Laurel, New Jersey.
“I know some people are in love with their pets,” he admits. “There is no doubt that my wife, to whom I jokingly say I’ve been married for 266 dog years, considers our several dachshunds more family than me. As an estate planner, I’ve witnessed my share of legacies/trusts left with allocations for the care and maintenance of their alter-family members.”
Unfortunately, some cagey pet lovers try to recoup some kibble by dreaming up schemes to pass their pet expenses off as business or medical deductions.
While Abo is wise to their ill-fated attempts to write off the family dog or cat, he’s always on the lookout for the good old MD-DVM switcheroo.
“I’m now even more vigilant in scanning attempts to ‘sneak in’ among tax deductions payments made to ‘doctors,’ which on further inquiry are confessed to being veterinarians,” he says. “It breaks their heart when I have to tell them such are not qualified medical expense deductions.”
Green rebate probably a write-off
Charitable contributions are a great way to shave a few bucks off your taxes while benefiting the Earth, creatures in need and your fellow human beings.
To take advantage of this most noble of tax deductions, you must file a Form 1040 and itemize deductions on Schedule A, making sure that you confine your giving to IRS-recognized organizations (no individuals allowed) and can show receipts if your contributions exceed $250.
Of course, charitable deductions should be a gift of the heart, and not the type of desperate tax dodge that Pon once witnessed.
“A client chopped down a tree that was blocking her view,” Pon recalls. “The tree was not on her property and was legally owned by the city, which fined her $45,000. She wanted to claim this as a charitable contribution to the city.
“Sorry, no dice!”
You may now kiss your accountant
Being an accountant, Rosen knew all about how to time her wedding years ago to take advantage of the marriage bonus.
The way it works is, if you marry in December, the IRS considers you a two-income household for the entire year, which can nudge you into a higher tax bracket. That’s the marriage penalty.
“By waiting until Jan. 14, we saved $1,200. That paid for our honeymoon,” Rosen recalls.
That’s the marriage bonus.
The marriage penalty typically affects dual-income spouses who earn close to the same amount. The marriage bonus is generally seen by couples where one spouse earns a lot more than the other. That’s why it’s good for prospective newlyweds to run the numbers before they take their vows.
It had been years since anyone had asked Rosen about the bonus, so when a new female client inquired last year, she was delighted to help.
“I said, ‘Great; bring in his tax return when you come,'” Rosen recalls. “She said, ‘You are assuming …’ and I couldn’t believe I’d made that mistake! With the new gay marriage laws, they suddenly realized they should consider the tax consequences of getting married now versus later.”
After crunching the numbers, Rosen told the couple they could save $9,000 by delaying their December nuptials until January. Unfortunately, as with most weddings these days, their date had long since been set in stone.
The happy ending? Same-sex couples can now enjoy the marriage bonus.