We’re sure you’re aware that there is a right way and a wrong way to do your taxes. But sometimes, tax deductions aren’t as “cut and dry” as they seem.
Take, for instance, the junkyard owner who had a rodent problem. Instead of hiring an exterminator, he bought cat food and put it out to attract feral cats. The cats took care of his problem and he claimed the cost of cat food as a business expense.
Or how about the taxpayer who tried to claim the cost of a daily sitter for his dog? It seems this pet owner thought his dog was unable to make it through the day alone.
One of those deductions was successful. Can you guess which one? Keep reading to find out.
Before we tell you though, we want to talk a little more about how to navigate the world of wacky tax deductions without ending up in trouble with the IRS. There is a lot of gray area in the tax codes, which is one of the many reasons it’s so important for you to consult with a Certified Tax Coach. When attempting wacky tax deductions, there are a few things you’ll want to keep in mind to make sure you keep as much of your money in your pocket as possible.
To kick off our series this month, here are 8 tips for doing wacky tax deductions right:
- Get creative: As long as you can show that something is a legitimate necessity for your job, it can be deducted. Just ask Cynthia Hess (a.k.a. exotic dance “Chesty Love”), who was allowed to write off a breast augmentation because her chest was essentially seen as a “stage prop” whose primary purpose was making money.
- Get your doctor on board: If your doctor prescribes something as treatment, any costs incurred as a result may be tax deductible. For example, The IRS allowed one man to claim the cost of having an elevator installed in his house because his doctor said it would help him manage his heart condition.
- Memberships: One businessman joined a golf club in order to meet new clients. He met with clients at the golf club, discussed business while golfing, and used his time spent there as a way to meet new potential clients. He was able to claim his monthly membership as a business expense because that was the primary purpose of that cost. Keep in mind that any memberships you have may be deductible if the primary reason for the cost is to conduct or generate business.
- Home office expenses: If you meet clients in your home, it’s possible that your allowable tax deductions extend beyond just your home office itself. One self-employed man was able to deduct part of the costs of landscaping (including lawn care and repairs). Keep in mind that this was only allowed because he regularly met with clients in his home.
- Document everything: If you buy an item for your business but its purpose is not immediately obvious, be prepared to defend the purchase. Keep track of where you’re driving and why for mileage deductions.
- Be smart about charitable donations: A woman once donated almost $40,000 worth of her ex-husband’s belongings but because the cap for charitable donations is 50% of adjusted gross income, she was only able to claim about $15,000 of what she donated. Now I’m sure that wise tax decision was not the first thing on her mind when she dropped everything at Goodwill but had she held onto some of it, she could have stretched the donations over a few years and been able to claim more of it.
- Know the real value of your deductions: One woman had trees in her yard that she no longer wanted so she dug them up and then donated them. She had to have an appraiser come out and determine the value of the trees before she was able to claim the entire value as a charitable contribution.
- Keep track of special deductions: There are special deductions for things that make a business more eco-friendly or provide better access for people with disabilities.
As you can see, there are a lot of questions when it comes to claiming deductions on your taxes. And there’s a reason that tax professionals get so much work… Because tax codes and laws are confusing and honestly, we take the time to figure it out so that you don’t have to. If you have questions about what you can and can’t claim, or need help navigating the tax codes, contact our office to get a referral to a Certified Tax Coach that can assist you.
And those two taxpayers we mentioned at the beginning of this post? Well… The junkyard owner was able to claim the cost of cat food because the cats helped to make the business safer for customers. The dog owner, on the other hand, tried to claim the cost of his pet-sitter under the deduction for childcare, which is reserved for human children. The IRS denied his claim.
Be sure to come back next week. We’ll be sharing a little bit of inspiration in the form of a few wacky medical expenses you may be able to claim. Don’t miss it!