Inside Stories from Accountants Who Have Seen It All

The accounting profession is generally quite serious, but even the most solemn tax preparation specialists can find humor in the more outrageous deductions their clients have attempted. Creativity certainly has its place – and there is a long list of expenses that might qualify you for tax savings – but some taxpayers push the boundaries a bit too far.

Three Expenses You Cannot Deduct

Creative application of allowable deductions can sometimes work in your favor, but these are three examples of taking creativity too far:

• When you win big at the casino, you can be sure the IRS will take a cut, but that doesn’t mean you can write off your losses as “charitable contributions”. Taxpayers occasionally try to slip gambling losses in as deductions, but they quickly learn that the IRS will not be persuaded on this point.
• Your pets are like family, and they can certainly be expensive. Food, dog walking services, and veterinary care can cost thousands of dollars every year. Unfortunately, no matter how much you love your critters – or how much you spend on their needs – they simply can’t be deducted as dependents. Thousands of taxpayers list dogs and cats on their returns, which eventually leads to penalties, interest, and back taxes.
• Lending money comes with inherent risk, particularly when the borrower is a friend or family member. Lots of people never repay these sorts of loans, leaving the lender high and dry. Nonetheless, an unpaid personal loan between two individuals doesn’t meet the criteria for a deductible expense, and the IRS doesn’t take kindly to seeing these losses on your tax return.

Before submitting uncommon deductions on your tax return, talk it through with your Certified Tax Coach. This will help to ensure that you stay on the right side of tax regulations.

Three Unusual Deductions That Are Entirely Legal

Most taxpayers know that there are a variety of deductions available for certain health-related expenses, but the eligibility criteria may be more expansive than you realized. The same goes for business expenses that, at first glance, don’t appear to qualify. These are three deductions you might have missed:

• Though many elective procedures – particularly cosmetic surgery – are not eligible for deduction, the entire category is not completely excluded. Breast augmentation is typically an elective procedure, and patients who choose this surgery for cosmetic reasons cannot deduct the expenses on their taxes. However, there is an exception to this rule: breast cancer survivors and individuals whose breasts are disfigured due to a medical condition can include breast augmentation with their deductible medical expenses.
• Every year, thousands of taxpayers try to deduct expenses related to their hobbies, explaining that the costs were medically necessary. Generally, the IRS will not allow this sort of thing. In one example, a taxpayer attempted to deduct the cost of an ATV, stating he needed the vehicle for stress reduction. Though uncommon, there are circumstances in which hobby-related expenses could be eligible. One individual successfully deducted the expenses related to installation and maintenance of a swimming pool, because his physician recommended low-impact exercise to treat his emphysema.
• There is a limit to deductions for business travel, and all too often, taxpayers try to get away with deducting portions of their business trips that were unrelated to their work. For example, travelers attempt to deduct expenses related to bringing their family along for the trip, or they submit expenses they incurred for excursions that took place outside of planned business activities, including snorkeling, golfing, and similar. These items cannot be deducted, but that doesn’t rule out all forms of entertainment. Check the agenda or conference schedule. If an excursion is listed as a networking or meet-and-greet event, it may be deductible.

Learn more about unusual deductions you might be missing – and deductions you should never try to take – by working with a Certified Tax Coach.