Tax season is here and filers, both individual and business, are digging through last year’s documents searching for ways to lower their tax liability or beef up refunds. While some of their findings may be completely legit, others could raise eyebrows at Uncle Sam’s headquarters.
Here are some commonly claimed deductions, and the consensus regarding their legality. You might be surprised.
Rover and Bruno may be your most prized possessions, but the IRS doesn’t necessarily share the same perspective. Simply put, four-legged friends do not earn you any tax privileges. Even if you wait on them around the clock and spend tons of your hard-earned cash to cover exorbitant vet bills, obedience training, winter apparel or dog treats, just to name a few, they still can’t be claimed as dependents and the expenses cannot be deducted. If you’re a self-employed business owner, placing them on the payroll won’t work either, even if they really are guard dogs. The IRS answers questions about specifics here.
If you’re in an industry that encourages excessive body décor, such as piercing and tattoos, go for it. But don’t expect the IRS to show you any mercy when it’s time to efile your return. That’s unless you can convince them that it’s essential to your duty and unique to the business, as those in the adult entertainment industry who’ve enhanced their breast size with implants have been able to do.
Voluntary Business Destruction
Fed up with steering your own ship? Shut the doors, put the business on the market or transfer ownership to a relative. Regardless of what you decide, leave arson off the list. Seems like common sense, but apparently a disgruntled furniture store didn’t get the memo and decided to hire someone to burn the place down. Instead of collecting $500,000 in insurance proceeds, recording it on his tax return and going about his merry way in an attempt to fly under the radar, he decided to include a consulting fee of $10,000, the amount paid to the arsonist. The end result: jail time and a $6,000 fine. Perhaps he forgot to issue the arsonist a 1099? Either way, the return seemed a bit fishy and the fraudster was stopped dead in his tracks.
Marine Business Meetings
Planning to host your next business meeting at sea? Believe it or not, a portion or all of the expenses incurred while aboard, excluding the boat rental, can be deducted from your return as long as they meet certain requirements, as outlined in IRS Publication 463. Just don’t forget to retrieve a boating license before you head out. If you don’t, you’ll have more than just proper expense accounting to worry about.
Health and Wellness
Out of shape? Getting fit can be costly, depending on which route you take, but expenses may be deductible if your physician gives you the green light. But you’ll want to get it in writing so the IRS will know it’s legitimate. TurboTax shares how to determine legitimate medical deductions on this forum.
Bottom line: if the deduction seems too good to be true or a bit unreasonable in your eyes, the IRS will probably agree. And when in doubt, it’s best to ask a tax professional before making assumptions and being hit with a penalty later on down the line.