Risky tax deductions
I have never been one to take risks on my taxes, but there are some folks who boldly go where most of us would never even try to go.
For the second year, the Minnesota Society of Certified Public Accountants has surveyed its members to come up with a list of the most outrageous tax deductions people fearlessly try to claim that were smacked down by their accountants.
“It’s a good bet that many of these deductions would have triggered a letter from the IRS, had a CPA not intervened and encouraged the tax filers to not include them on their tax returns,” said Sara Portner, chairwoman of the organization.
If you have children, you know that when they get on your nerves you always can manage a smile when you think about the dependent exemption you get on your taxes. Well, one woman wanted to claim her unborn infant for the months she was pregnant last year even though she gave up the newborn for adoption. Another taxpayer wanted to claim an elected official because he “pays his salary.”
Yet another person wanted to claim a former spouse. Just in case you’re thinking you might try this on your return, the IRS does not allow you to claim your spouse as a dependent even if the spouse doesn’t work and is dependent on your income. But when you file a joint tax return, you and your spouse each receive an exemption from paying taxes on a portion of your income, and that exemption is usually worth the same amount you would get for a dependent, according to the software company TurboTax.
And, oh my, what business owners try to claim. On the Minnesota list is a handyman who wanted to take a $25,000 deduction for the miles he drove for work. Now, mind you, the total revenue for the business was $10,000.
Carl G. Peterson, a member of the Minnesota CPA group who owns an accounting firm in the Twin Cities, had a new business client with unusually high auto expenses.
“Further questioning revealed that the client bought a new red Corvette and thought it was a legitimate deduction even though it was kept in Florida while the client was a resident here in Minnesota,” Peterson said. “It is amazing what people want to take or think they can take as a deduction. We try to laugh with the client and impress upon them that no, your chain saw is not needed in your chiropractic business.”
Even if you invite business associates to your child’s wedding, don’t do what one person tried to do, which was to deduct the full cost of the wedding reception.
People often inflate the value of what they give to charities. One CPA client wanted to deduct the market value of the blood he donated.
There are medical expenses you can claim, but some people go too far. Someone tried to claim an in-ground swimming pool without a doctor’s order. Another person wanted to deduct a spouse’s drug habit.
TurboTax has its own oddball list, but these deductions were upheld, after being challenged by the IRS:
●A professional bodybuilder was finally allowed to deduct as a business expense the body oil he used to make his muscles glisten under stage lights during competitions. The Tax Court did not, however, let him deduct the buffalo meat and special vitamin supplements he used to develop his muscles.
●An exotic dancer known as “Chesty Love” made headlines when she successfully sued the IRS, which challenged her $2,088 deduction for breast augmentation. A judge allowed the dancer to write off the cost of her operation, ruling that her enlarged breasts were the equivalent of stage props.
●The owner of several rental properties hired his live-in girlfriend to manage them and wanted to deduct what he paid her. The girlfriend’s duties included finding furniture and overseeing repairs. The rental property owner was finally allowed to deduct $2,500 of the $9,000 he paid his girlfriend. The disallowed portion was considered to be for nondeductible personal services.
Be bold if you want, but outrageous deductions draw attention, and not just from the IRS.
“Many states are more aggressive in doing audits because states need the money,” Peterson said.
Certainly you should go for every deduction you’re allowed to take. But before trying to be bold, check with a tax professional. What you might end up paying if the deduction is not allowed or to defend it in court might not be worth what you would have saved on your taxes.
Write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletarym@
washpost.com. Questions are welcomed, but because of the volume of mail, personal responses may not be possible. For previous Color of Money columns, go to postbusiness.com.
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