Every year I obsess over finding each and every available tax deduction to include in my federal tax return. And, nearly every year, I make a new and unusual discovery in my research. But, the people in the following stories have taken strange tax deductions to the next level.
Stories Collected from Strange but Legit Tax Deductions, More Strange Tax Deductions, and Still More Strange Tax Deductions by Robert Wood. Edited for length. Source:[forbes.com]
Payments to Your Significant Other. Bruce needed someone to manage his rental properties so he hired his live-in girlfriend. Her duties included finding furniture, overseeing repairs and also running his personal household. The IRS thought any pay he gave her was not a legitimate deduction.
But he went to Tax Court and won. The Tax Court said $2,500 of the $9,000 he paid her was deductible as a business expense. It disallowed the cost of her housekeeping chores as nondeductible personal services.
Private Plane Anyone? Whether you can justify a private plane and treat the cost as a business expense depends on your circumstances, how much you use it, and more. But many taxpayers can and do justify it, and you don't have to be Warren Buffett.
Take French v. Commissioner. Rather than driving five to seven hours to check on their rental condo or be tied to one daily commercial flight, the Frenches bought their own plane. The IRS didn't think any part of it could be written off. But the Tax Court allowed them to deduct their condo-related trips in the plane.
That included fuel and depreciation for the portion of time they used the plane for business. What's more, the Tax Court allowed this even though the aviation costs increased their overall rental loss on the condo.
Pet Food. The big cat case last year was the Oakland California Cat Lady who got national press for beating the IRS in a cat fight. Her tax decision supported claiming the cost of vet bills and cat food as charitable contribution deductions. See Cat Lady Goes To Tax Court. Sadly, she later faced animal cruelty charges.
But even with that ending, hers isn't the only successful cat person case in the tax literature. In Seawright v. Commissioner, a married couple owned a junkyard. They put out cat food to attract wild cats. Why, you might ask? The feral cats they were trying to attract dealt with snakes and rats on the property. That made for a safer junkyard for customers.
And that made cat food a business expense. The IRS thought this was ridiculous but the Tax Court didn't think so. In fact, by the time the case reach the Tax Court the IRS agreed!
Drunk Driving Expenses. Mr. Rohrs drank too much at a party but had the good sense to arrange a ride home. Rather than sleeping it off, a few hours later he thought he was okay to drive. Unfortunately, he drove off the road and was arrested for driving under the influence.
His car was damaged and his insurance company refused to cover it since alcohol and the police were involved. As a result, Mr. Rohrs paid for the repairs and deducted them. It was a casualty loss, he claimed. The IRS said no and Mr. Rohrs went to Tax Court.
The court commented that it wouldn't have allowed his casualty loss argument had he driven straight home from the party and crashed the car. But his reasonable actions gave rise to his reasonable deduction.
Babysitting Fees. Babysitters are personal expenses, but occasionally can be something else. Take charitable contributions. The IRS says "you cannot deduct payments for child care expenses as a charitable contribution, even if they are necessary so you can do volunteer work for a qualified organization." See IRS Publication 526, Charitable Contributions, Table 2.
However, Mrs. Kingsley paid her sitter so she could be out of the house doing volunteer work for charity. Clearly, the money for the sitter didn't go to the charity, and the IRS said there was no deduction. But in Kingsley v. Commissioner, T.C. Summ. Op. 1978-74, the Tax Court held the sitter's fees qualified as charitable contributions since they enabled Mrs. Kingsley's work. The court expressly rejected a contrary IRS Revenue Ruling 73-597.
Free Beer. In a promotional scheme that probably wouldn't be attempted today, the owner of a gas station decided that patrons would rather have beer than trading stamps. He deducted the beer as a business expense. The IRS denied the deductions and he went to Tax Court where the court ruled the deductions were proper.
Home Landscaping Costs. Home office deductions are notoriously scrutinized so it might surprise you to find that someone deducted the costs of landscaping. See Is Your Bathroom Your Home Office? But if you meet the special hurdles to claiming home office expenses, you can too. In Langer v. Commissioner, a sole proprietor regularly met clients in his home office.
He kept up the place in part to make it suitable for that use. It wasn't all deductible, but when the IRS denied his deductions he prevailed in Tax Court. The court said he could deduct part of the costs of landscaping the property coinciding with the part of the home he used for business. The court even allowed a deduction for a portion of the costs of lawn care and driveway repairs.
Pet Moving Expenses. If you are changing jobs and meet several tests, you can deduct your moving expenses. See IRS Tax Topic 455. Compared to your own moving expenses, pet moving is likely inexpensive. Still, even the IRS says you can sometimes deduct the costs of moving your pet. See IRS Publication 521, Moving Expenses.
What's more, this is an above-the-line deduction, meaning that it isn't subject to alternative minimum tax.
Oil Yourself Up. Corey L. Wheir, a professional bodybuilder, went through a lot of body oil to make his muscles glisten in the lights during competitions. When he deducted the oil on his taxes, the IRS said no. The Tax Court, however, let it slip by.
After all, this was a for-profit endeavor and the oil greased the way for more wins. How about Mr. Wheir's deductions for buffalo meat and special vitamins? Here, the Tax Court said no. They may have enhanced his strength and muscle development, but they were not deductible.
Swimming Pool. The rules for medical expenses are amazingly liberal. See Tax Breaks For Alcoholics, But Not Weight Watchers. There's a high percentage threshold for deducting them, but with big expenses it can pay. One of the more often cited examples is a swimming pool.
In Cherry v. Commissioner, the taxpayer had emphysema and installed a swimming pool after his doctor ordered an exercise regimen. He swam twice a day and improved his breathing capacity. The Tax Court allowed him to deduct the cost of the pool (to the extent the cost exceeded the amount it added to the value of the property) as a medical expense.
After all, the primary purpose of the pool was medical care. Even the cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area were deductible.
Breast Augmentation. Medical expenses can come in all shapes and sizes, as the swimming pool cases make clear. Most people know that cosmetic surgery costs are usually non-deductible. However, an exotic dancer whose stage name was "Chesty Love" tested this rule.
If you want bigger tips, you go bigger, she reasoned. So she decided to go way bigger, shelling out for breast implants that would bloat her bra size to 56-FF. When she wrote off the bill, the IRS said it was nondeductible cosmetic surgery.
But the Tax Court thought her business justification was real. See Hess v. Commissioner. It allowed tax benefits but required her to claim the implants as depreciable assets. The court considered them a type of stage prop.
Restitution in a Fraud Case. To be deductible, restitution usually must be something you were ordered to pay by a court. In one notable case, a dentist paid restitution that helped his wife. See Cavaretta v. Commissioner. She kept the dentist's books and billed insurers for work he never performed. She went to jail and the dentist husband repaid all amounts.
When he deducted them as a business expense the IRS said no. But the Tax Court allowed the deductions, ruling that while neither she nor the dentist were legally required to pay the restitution, he was doing it to resolve civil claims on his practice. That made the payments deductible as business expenses.
End of article.
Of course, our Checkered Flag stores are hopping during tax season as Hampton Roads taxpayers receive refund checks or head in to pick up new tax-deductible business vehicles. If you're ready to visit for a test drive, call any Checkered Flag Virginia Beach and Norfolk new and used vehicle location at (757)490-1111.