Craziest Tax Deductions
By Blake Ellis | CNNMoney.com – Thu, Mar 8, 2012 10:22 PM ESTFrom pet pigs to Evian water, here are some of the most outlandish deductions taxpayers have tried to slip past the IRS.
Carrier pigeons
Call it extreme communication. One taxpayer was so distrustful of technology that he wouldn't use a telephone or computer.
That posed a problem when it came to communicating with his business partner, who lived across town in Phoenix. So he came up with a plan: carrier pigeons.
The two now send messages to each other via the birds. And the technophobe thought it made sense to write off the pigeons, as well as their care, food and housing as a business expense.
Shauna Wekherlien, the CPA at Tax Goddess Business Services who prepared his return, said she asked him a lot of questions (like whether he has ever owned a computer) to establish whether he had ever used technology to communicate with people in the past.
He said he hadn't so she determined that the deduction was fair game, given that it was the only way he could reach his business partner.
A baby
A woman from Arizona actually tried to deduct the cost of her own baby.
Because she used photos of her child in marketing materials for her curtain and blinds business, she thought the money she spent on her baby's food, clothing, nanny, diapers and baby powder -- a total of about $26,000 -- should all count as deductible business expenses.
CPA Wekherlien, at Tax Goddess Business Services, said she was able to write off the cost of hiring the photographer who took the photos of the baby, as well as the baby's stroller and the onesies that carried the company logo (which pictured the baby), but the rest of the expenses weren't allowed.
$1,000 worth of Evian water
With the right prescription, even bottled water can be deductible. In fact, one very wealthy client managed to deduct $1,095 worth of Evian water as a medical expense on her taxes.
Somehow, the woman had convinced her doctor to give her a prescription for three bottles of Evian water every day, said John Lieberman, a CPA at Perelson Weiner LLP.
Lieberman didn't ask her what the medical condition was that required her to drink only Evian water, but he said the deduction was permissible since it was actually prescribed by a doctor and she still had the prescription note for her files.
Tummy tuck
Writing off breast enlargements as a work expense is old news. But one Hooter's waitress added a new twist: she wanted to write off her tummy tuck as well. She argued that both larger breasts and a smaller stomach would translate into bigger tips on the job.
Tom Reed, president of accounting firm Budget Business Service, said people have successfully deducted breast enlargements in the past under the argument that it affects their income. But there is no precedent for tummy tucks. He said it would be harder to successfully deduct the surgery unless the taxpayer has a legitimate medical reason and it is recommended by a physician with a prescription.
In the end, Reed didn't have to attempt the deduction for the Hooter's waitress. He discovered that claiming the standard deduction -- which is a reduction in taxes that you can receive if you choose not to itemize deductions -- was the better option for her return, he said.
Dental implants
It's not that far fetched to think that missing a bunch of teeth might hinder your prospects in a job search. In fact, one job hunter tried to write off his dental implants as a job-hunting expense, arguing that he had a better chance of getting a job with a full set of pearly whites.
His tax preparer, John Lieberman, at Perelson Weiner LLP, said he might have been able to make a case for the deduction as a medical expense if there was a medical reason the client got the implants. But since it was for aesthetic reasons, the deduction was denied.
Fake eyelashes
Exotic dancers need to maintain their looks in order to rake in tips -- and that means shelling out some serious cash for costumes and cosmetics.
For years, one dancer in New York has been able to deduct the money she spends on looking good, including outfits, photos and makeup -- even false eyelashes, tanning, teeth whitening and skin and hair care. The amounts vary from year to year, but typically it all adds up to a few thousand dollars.
The dancer was even audited once and the costs were ultimately allowed, so Gabriella Mascitelli Marion, the CPA at Adeptus Partners who prepared the dancer's return, had no qualms about letting her write off all of the expenses again this year.
Recreational drugs
Certain drugs qualify as legitimate medical deductions. But when they're recreational drugs, like say cocaine or ecstasy, the expenses are a little harder to slip by the IRS.
Dave Spaulding, an enrolled agent at Janover LLC, a financial planning firm, said clients who were in a rock band actually tried to deduct an item labeled "drugs" as "travel & entertainment" expenses.
The total cost of the "drugs" was in the high five-figures, and the band didn't even try to disguise them as prescription or medical drugs.
"The band's bookkeeper had concluded that the cost of recreational drugs was necessary and ordinary," he said. "Apart from admitting to possession of illegal drugs, the IRS would strongly differ with their tax position."
Needless to say, Spaulding's firm removed the deduction from the band's tax form.
Pet pig
No matter how much you love your pet, be it a dog, cat, fish or pig, you can't count them as a dependent on your tax forms and you can't deduct their expenses.
Paul Lupo, an enrolled agent at Lupo & Associates, said a client came into his office wanting to claim his pet pig as a dependent because he paid for all of its expenses. The client wanted to write off the cost of the pig's food and medical costs, which added up to more than $7,000.
"At first I smiled and almost started to laugh thinking that he was being funny, but once I realized that he was serious and not wanting to insult him I explained that it says in the tax code that it must be a person," said Lupo. "The person was disappointed and argued with me over it. After about 10 minutes he got mad and left telling me I didn't know what I was talking about."
Had the client been able to claim the pig as a dependent -- and write off the $7,000 in expenses -- he would have reduced his tax bill by $4,000.
Carrier pigeons
Call it extreme communication. One taxpayer was so distrustful of technology that he wouldn't use a telephone or computer.
That posed a problem when it came to communicating with his business partner, who lived across town in Phoenix. So he came up with a plan: carrier pigeons.
The two now send messages to each other via the birds. And the technophobe thought it made sense to write off the pigeons, as well as their care, food and housing as a business expense.
Shauna Wekherlien, the CPA at Tax Goddess Business Services who prepared his return, said she asked him a lot of questions (like whether he has ever owned a computer) to establish whether he had ever used technology to communicate with people in the past.
He said he hadn't so she determined that the deduction was fair game, given that it was the only way he could reach his business partner.
A baby
A woman from Arizona actually tried to deduct the cost of her own baby.
Because she used photos of her child in marketing materials for her curtain and blinds business, she thought the money she spent on her baby's food, clothing, nanny, diapers and baby powder -- a total of about $26,000 -- should all count as deductible business expenses.
CPA Wekherlien, at Tax Goddess Business Services, said she was able to write off the cost of hiring the photographer who took the photos of the baby, as well as the baby's stroller and the onesies that carried the company logo (which pictured the baby), but the rest of the expenses weren't allowed.
$1,000 worth of Evian water
With the right prescription, even bottled water can be deductible. In fact, one very wealthy client managed to deduct $1,095 worth of Evian water as a medical expense on her taxes.
Somehow, the woman had convinced her doctor to give her a prescription for three bottles of Evian water every day, said John Lieberman, a CPA at Perelson Weiner LLP.
Lieberman didn't ask her what the medical condition was that required her to drink only Evian water, but he said the deduction was permissible since it was actually prescribed by a doctor and she still had the prescription note for her files.
Tummy tuck
Writing off breast enlargements as a work expense is old news. But one Hooter's waitress added a new twist: she wanted to write off her tummy tuck as well. She argued that both larger breasts and a smaller stomach would translate into bigger tips on the job.
Tom Reed, president of accounting firm Budget Business Service, said people have successfully deducted breast enlargements in the past under the argument that it affects their income. But there is no precedent for tummy tucks. He said it would be harder to successfully deduct the surgery unless the taxpayer has a legitimate medical reason and it is recommended by a physician with a prescription.
In the end, Reed didn't have to attempt the deduction for the Hooter's waitress. He discovered that claiming the standard deduction -- which is a reduction in taxes that you can receive if you choose not to itemize deductions -- was the better option for her return, he said.
Dental implants
It's not that far fetched to think that missing a bunch of teeth might hinder your prospects in a job search. In fact, one job hunter tried to write off his dental implants as a job-hunting expense, arguing that he had a better chance of getting a job with a full set of pearly whites.
His tax preparer, John Lieberman, at Perelson Weiner LLP, said he might have been able to make a case for the deduction as a medical expense if there was a medical reason the client got the implants. But since it was for aesthetic reasons, the deduction was denied.
Fake eyelashes
Exotic dancers need to maintain their looks in order to rake in tips -- and that means shelling out some serious cash for costumes and cosmetics.
For years, one dancer in New York has been able to deduct the money she spends on looking good, including outfits, photos and makeup -- even false eyelashes, tanning, teeth whitening and skin and hair care. The amounts vary from year to year, but typically it all adds up to a few thousand dollars.
The dancer was even audited once and the costs were ultimately allowed, so Gabriella Mascitelli Marion, the CPA at Adeptus Partners who prepared the dancer's return, had no qualms about letting her write off all of the expenses again this year.
Recreational drugs
Certain drugs qualify as legitimate medical deductions. But when they're recreational drugs, like say cocaine or ecstasy, the expenses are a little harder to slip by the IRS.
Dave Spaulding, an enrolled agent at Janover LLC, a financial planning firm, said clients who were in a rock band actually tried to deduct an item labeled "drugs" as "travel & entertainment" expenses.
The total cost of the "drugs" was in the high five-figures, and the band didn't even try to disguise them as prescription or medical drugs.
"The band's bookkeeper had concluded that the cost of recreational drugs was necessary and ordinary," he said. "Apart from admitting to possession of illegal drugs, the IRS would strongly differ with their tax position."
Needless to say, Spaulding's firm removed the deduction from the band's tax form.
Pet pig
No matter how much you love your pet, be it a dog, cat, fish or pig, you can't count them as a dependent on your tax forms and you can't deduct their expenses.
Paul Lupo, an enrolled agent at Lupo & Associates, said a client came into his office wanting to claim his pet pig as a dependent because he paid for all of its expenses. The client wanted to write off the cost of the pig's food and medical costs, which added up to more than $7,000.
"At first I smiled and almost started to laugh thinking that he was being funny, but once I realized that he was serious and not wanting to insult him I explained that it says in the tax code that it must be a person," said Lupo. "The person was disappointed and argued with me over it. After about 10 minutes he got mad and left telling me I didn't know what I was talking about."
Had the client been able to claim the pig as a dependent -- and write off the $7,000 in expenses -- he would have reduced his tax bill by $4,000.
