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The Craziest Tax Write-offs
Bankrate.com
By Jay MacDonald
Have you heard the one about the $300 breast pump? The male model? The pimped-out Amish buggy?
That's right -- Bankrate's back with another nine of the craziest tax write-offs you've ever heard of, in the hope it will make paying your 2006 federal income tax a little bit easier.
For our last installment of the nine weirdest write-offs, we combed the country collecting stories from certified public accountants about the craziest tax deductions they'd ever seen. The search turned up plenty of ingenious ways in which taxpayers have tried to justify deducting everything from ostrich breeding to sperm donations to dog food.
Dogs once again get their due in this year's collection. While our pets may seem like part of the family, as we will see, attempts to treat them as actual dependents -- or more outrageously, subcontractors -- simply won't fly with the Internal Revenue Service.
It's never a good idea to tempt fate by trying to slide one by Uncle Sam. Serious consequences may result from underreporting income, filing a false or erroneous claim, or attempting to make up your own personal tax rules.
Deductions in the tax code tend to fall into two broad categories, according to John Barghini, a CPA and partner in Hansen, Jergenson, Nergaard & Co. LLP of Minneapolis.
"Deductions are primarily related to business activities or where our government wants to reward us for being family people, as in dependent and day care deductions," he says.
While it may seem like deductions would be easy to abuse, Barghini says most taxpayers don't consider the reward worth the risk.
"I think there is more unreported income than there are overstated deductions," he says. "The deductions where people tend to ***** it are in charitable contributions. And some you can't *****, because things like mortgage interest or real estate taxes are typically reported to the IRS."
Ah, but that doesn't mean we don't try.
Daffy deductions
Here are nine of the craziest write-offs we've ever heard of. Warning: Don't try these at home!
Nine craziest deductions
1. Hidden asset
Elizabeth Dittrick of Dittrick & Associates in Cleveland was a staff accountant with Arthur Andersen when she witnessed a particularly uncomfortable client meeting with a married couple. The deduction was legitimate; it was the underlying asset that proved to be the problem.
"We were going over their tax information and the tax manager asked the gentleman, 'Now what about the mortgage interest deduction for the condo in Utah?' Unfortunately, the wife didn't know about the condo in Utah, where he had set up his mistress. It was a big 'oops' moment. There was this stony silence in the room. It was absolutely awful," she recalls.
2. Dog-ductions, part 1
What dog lover hasn't melted when man's best friend gives him that baleful look as he heads off to work? One taxpayer decided to create his own tax rule to ease the pain: "There is one individual who tried to deduct a day care expense for their dog," says Barghini. "The person was working and they didn't feel that the dog should be left alone, so they hired somebody to watch the dog, then tried to take a day care tax credit for the doggy-sitting. The dog clearly was an economic dependent, but not for tax purposes.
3. Now THAT'S a super!
Sure, it's easy to find bad things to say about landlords, but what about all the good things they do? Dittrick admits that while she liked the sentiment, she wasn't buying this landlord's story for a minute: "There was a guy who had rental property and tried to deduct a limousine charge in the year he got married by claiming that he had taken his renters out for a night on the town, when I knew that it was for the wedding," she says. "I ended up refusing to sign the return."
4. At that price, it should change diapers, too
CPA Ruth Ann Michnay of St. Paul, Minn., thought she might have been out of touch with maternity technology on this one: "I once had a young mother as a client who listed a breast pump at over $300," she says. "My kids are grown up but I never remember them being that expensive, so my first reaction was that it must have been some medical situation with the child. You never know. But no, it was strictly for her convenience to operate. She was claiming it as a medical expense. I talked her out of it."
5. Dog-ductions, part 2
You think it's hard to find good help? Tell it to the IRS. Even the CPA source for this one wished to remain anonymous: "A landscaper who was under audit with the IRS had deducted the expense of their dog because he would pull the wagon on landscaping jobs. They felt he was out there helping. He may have been listed as an independent contractor."
6. Me, I'm a freelance food critic
There are those taxpayers who mistakenly believe that if their hobbies come anywhere close to their means of making a living, what they spend on it should be deductible as a business expense. And perhaps it is -- on Mars! New York CPA Alan J. Straus knew of a Hollywood set electrician who tried to write off the cost of buying and renting movie videos and DVDs, and a professor of Italian culture and European art who tried to deduct his theater and concert tickets.
Then again, sometimes what appears to be a flagrantly crazy write-off on paper will actually turn out to be permissible. Witness this unlikely deduction from Alan Dlugash, a CPA with the New York firm of Marks Paneth & Shron LLP: "A client not only tried to, but properly did deduct several thousands of dollars of comic book purchases. He was a university doctoral student, doing his thesis in his field of expertise ... having to do with the relationship of comic books to the societal values of the era." D'oh!
7. Dog-ductions, part 3
Barghini had one enterprising client who believed he'd found a doggone great way to boost his charitable deduction and thus shave a little off his taxes. "An individual who bred dogs was looking for a tax deduction, so he thought that he would give one of his dogs to the Humane Society and take a deduction for it. They were valuable dogs but he bred it, so he could not take a tax deduction for it." The reason? Barghini explains that the tax code allows you to depreciate over time such breeding stock as cattle, race horses and yes, even show dogs, provided you are breeding them with the intent to sell the offspring. In these instances, you may depreciate the breeding male or female, but not the offspring.
8. Clothes (deductions) make the man
Here's a line of thought we've all tried on at one time or another: I have to look professional at work so why shouldn't I deduct the cost of my suits, shoes and ties? And of course that is perfectly allowable -- on Uranus! Here on Earth however, a less generous tax rule applies, as one of Barghini's clients found out: "I was dealing with a male model who wanted to write off his entire wardrobe because he needed to look good all the time. There are very strict rules about writing off clothing. Basically, if you are required to wear a uniform of a nature that you're not going to wear it out in public socially, such as an auto mechanic's blue jumpsuit with a patch that says 'John' or nursing clothes, you can write them off. It's basically clothes that you're only going to wear at work; you'd be embarrassed to go to the bar in them. If it's clothes that you can wear on a daily basis, you cannot write them off. Businessmen or businesswomen trying to write off their suits will not fly."
9. Pimp my buggy
This one was so outlandish that Dittrick actually faxed us the two-page itemized receipt to prove it: "We live in an Amish community here and we had an Amish guy who tried to take a deduction for his buggy with velvet interior, the whole works. It was tricked out. He was legitimately Amish, but with all the accoutrements on this buggy, when they're supposed to live the simple life, it was absolutely hilarious," she says.
How pimped out was his ride? According to the receipt, this baby came equipped with dash lights, kick plates, tinted windshield, speedometer, hydraulic brakes and dimmer switches. The standard buggy costs $2,675; this pimped-out version ran $3,545.
"He could deduct the buggy of course, since it was used for business, but on that one, we had to pick and choose what we were going to deduct," Dittrick says. "But the Amish teenagers do go through a period where they sew their wild oats, so to speak, and put the fuzzy dice and boom boxes in them. Every so often in the police blotters up here you'll see a complaint about a buggy with music playing."
LINK
Bankrate.com
By Jay MacDonald
Have you heard the one about the $300 breast pump? The male model? The pimped-out Amish buggy?
That's right -- Bankrate's back with another nine of the craziest tax write-offs you've ever heard of, in the hope it will make paying your 2006 federal income tax a little bit easier.
For our last installment of the nine weirdest write-offs, we combed the country collecting stories from certified public accountants about the craziest tax deductions they'd ever seen. The search turned up plenty of ingenious ways in which taxpayers have tried to justify deducting everything from ostrich breeding to sperm donations to dog food.
Dogs once again get their due in this year's collection. While our pets may seem like part of the family, as we will see, attempts to treat them as actual dependents -- or more outrageously, subcontractors -- simply won't fly with the Internal Revenue Service.
It's never a good idea to tempt fate by trying to slide one by Uncle Sam. Serious consequences may result from underreporting income, filing a false or erroneous claim, or attempting to make up your own personal tax rules.
Deductions in the tax code tend to fall into two broad categories, according to John Barghini, a CPA and partner in Hansen, Jergenson, Nergaard & Co. LLP of Minneapolis.
"Deductions are primarily related to business activities or where our government wants to reward us for being family people, as in dependent and day care deductions," he says.
While it may seem like deductions would be easy to abuse, Barghini says most taxpayers don't consider the reward worth the risk.
"I think there is more unreported income than there are overstated deductions," he says. "The deductions where people tend to ***** it are in charitable contributions. And some you can't *****, because things like mortgage interest or real estate taxes are typically reported to the IRS."
Ah, but that doesn't mean we don't try.
Daffy deductions
Here are nine of the craziest write-offs we've ever heard of. Warning: Don't try these at home!
Nine craziest deductions
1. Hidden asset
Elizabeth Dittrick of Dittrick & Associates in Cleveland was a staff accountant with Arthur Andersen when she witnessed a particularly uncomfortable client meeting with a married couple. The deduction was legitimate; it was the underlying asset that proved to be the problem.
"We were going over their tax information and the tax manager asked the gentleman, 'Now what about the mortgage interest deduction for the condo in Utah?' Unfortunately, the wife didn't know about the condo in Utah, where he had set up his mistress. It was a big 'oops' moment. There was this stony silence in the room. It was absolutely awful," she recalls.
2. Dog-ductions, part 1
What dog lover hasn't melted when man's best friend gives him that baleful look as he heads off to work? One taxpayer decided to create his own tax rule to ease the pain: "There is one individual who tried to deduct a day care expense for their dog," says Barghini. "The person was working and they didn't feel that the dog should be left alone, so they hired somebody to watch the dog, then tried to take a day care tax credit for the doggy-sitting. The dog clearly was an economic dependent, but not for tax purposes.
3. Now THAT'S a super!
Sure, it's easy to find bad things to say about landlords, but what about all the good things they do? Dittrick admits that while she liked the sentiment, she wasn't buying this landlord's story for a minute: "There was a guy who had rental property and tried to deduct a limousine charge in the year he got married by claiming that he had taken his renters out for a night on the town, when I knew that it was for the wedding," she says. "I ended up refusing to sign the return."
4. At that price, it should change diapers, too
CPA Ruth Ann Michnay of St. Paul, Minn., thought she might have been out of touch with maternity technology on this one: "I once had a young mother as a client who listed a breast pump at over $300," she says. "My kids are grown up but I never remember them being that expensive, so my first reaction was that it must have been some medical situation with the child. You never know. But no, it was strictly for her convenience to operate. She was claiming it as a medical expense. I talked her out of it."
5. Dog-ductions, part 2
You think it's hard to find good help? Tell it to the IRS. Even the CPA source for this one wished to remain anonymous: "A landscaper who was under audit with the IRS had deducted the expense of their dog because he would pull the wagon on landscaping jobs. They felt he was out there helping. He may have been listed as an independent contractor."
6. Me, I'm a freelance food critic
There are those taxpayers who mistakenly believe that if their hobbies come anywhere close to their means of making a living, what they spend on it should be deductible as a business expense. And perhaps it is -- on Mars! New York CPA Alan J. Straus knew of a Hollywood set electrician who tried to write off the cost of buying and renting movie videos and DVDs, and a professor of Italian culture and European art who tried to deduct his theater and concert tickets.
Then again, sometimes what appears to be a flagrantly crazy write-off on paper will actually turn out to be permissible. Witness this unlikely deduction from Alan Dlugash, a CPA with the New York firm of Marks Paneth & Shron LLP: "A client not only tried to, but properly did deduct several thousands of dollars of comic book purchases. He was a university doctoral student, doing his thesis in his field of expertise ... having to do with the relationship of comic books to the societal values of the era." D'oh!
7. Dog-ductions, part 3
Barghini had one enterprising client who believed he'd found a doggone great way to boost his charitable deduction and thus shave a little off his taxes. "An individual who bred dogs was looking for a tax deduction, so he thought that he would give one of his dogs to the Humane Society and take a deduction for it. They were valuable dogs but he bred it, so he could not take a tax deduction for it." The reason? Barghini explains that the tax code allows you to depreciate over time such breeding stock as cattle, race horses and yes, even show dogs, provided you are breeding them with the intent to sell the offspring. In these instances, you may depreciate the breeding male or female, but not the offspring.
8. Clothes (deductions) make the man
Here's a line of thought we've all tried on at one time or another: I have to look professional at work so why shouldn't I deduct the cost of my suits, shoes and ties? And of course that is perfectly allowable -- on Uranus! Here on Earth however, a less generous tax rule applies, as one of Barghini's clients found out: "I was dealing with a male model who wanted to write off his entire wardrobe because he needed to look good all the time. There are very strict rules about writing off clothing. Basically, if you are required to wear a uniform of a nature that you're not going to wear it out in public socially, such as an auto mechanic's blue jumpsuit with a patch that says 'John' or nursing clothes, you can write them off. It's basically clothes that you're only going to wear at work; you'd be embarrassed to go to the bar in them. If it's clothes that you can wear on a daily basis, you cannot write them off. Businessmen or businesswomen trying to write off their suits will not fly."
9. Pimp my buggy
This one was so outlandish that Dittrick actually faxed us the two-page itemized receipt to prove it: "We live in an Amish community here and we had an Amish guy who tried to take a deduction for his buggy with velvet interior, the whole works. It was tricked out. He was legitimately Amish, but with all the accoutrements on this buggy, when they're supposed to live the simple life, it was absolutely hilarious," she says.
How pimped out was his ride? According to the receipt, this baby came equipped with dash lights, kick plates, tinted windshield, speedometer, hydraulic brakes and dimmer switches. The standard buggy costs $2,675; this pimped-out version ran $3,545.
"He could deduct the buggy of course, since it was used for business, but on that one, we had to pick and choose what we were going to deduct," Dittrick says. "But the Amish teenagers do go through a period where they sew their wild oats, so to speak, and put the fuzzy dice and boom boxes in them. Every so often in the police blotters up here you'll see a complaint about a buggy with music playing."
LINK